Franchises Re-Sell at Higher Rates Than Non-Franchised Businesses

At FranNet of DFW & Oklahoma, we’re fond of reminding our clients that there are three avenues to owning a business of your own. By now, you should know that you’re perfectly welcome to start a business of your own from scratch – but you’ll be responsible for developing the business model and creating the operating systems and procedures prior to launch. Franchising solves this problem, as owners are provided with a proven business model to follow, and all the systems and procedures have been developed beforehand. But the third of these options often gets little attention – buying an existing franchise operation or small business.

In this latest blog edition, we’re going to take a closer look at the pros and cons of buying an existing franchise and transferring ownership. And we’ll close with some statistics that reveal franchise operations command a higher price at resale than their non-franchised counterparts.

What’s Great About Buying an Existing Franchise

There are many of the so-called “pros” to consider when exploring the resale of a franchise operation. In an ideal setting, the buyer will be purchasing an existing business with an established customer base (hopefully a robust one). Minus the traditional launch period, it’s conceivable that the revenue stream will already be productive, and owners may easily reach the break-even point at a faster rate. The operation, along with its systems and processes are already in place, making the transition an easy affair for the new ownership. Lastly, in many cases, it may be much easier to secure financing if you need to fund the purchase, thanks to the established history of the operation.

What to Watch for When Buying an Existing Franchise

It’s always advisable to bring a healthy dose of skepticism when considering the purchase of an existing franchise. It’s basically a defense mechanism, but an admirable approach, nonetheless. When considering the purchase of an existing operation, you still need to do quite a bit of due diligence to explore what you’ll be getting in the deal. First and foremost, you need to determine if the owner has the legal right to sell or transfer ownership, as some franchises have strict guidelines in place when it comes to resale opportunities. You can ask the owner outright why they’re choosing to sell, but you might not get a perfectly straight answer, so take everything with a tiny grain of salt. A thorough examination of the books is in your best interest, as well as a deep dive into the establishment’s reputation – which is where online reviews come in handy.

The Great News for the Buyer…and Seller

Thanks to a groundbreaking, peer-reviewed study, FranNet of DFW & Oklahoma can say with confidence that franchises sell at a more profitable price than non-franchised businesses. That’s great news for the buyer, who may one day sell the franchise themselves as an exit strategy, and the seller, who can command a better deal than if the operation wasn’t a franchise. The study was conducted by professors at the Rinker School of Business at Palm Beach Atlantic University. From the methodology, we know that the study looked into the resale of over 2,000 small businesses over a 10-year period. The purchase prices were tracked and then compared head-to-head. The conclusion was a huge boost to the franchising industry, as the study found that franchise resale opportunities sold at one and a half times higher than their non-franchised counterparts.

Many of FranNet of DFW & Oklahoma’s clients buy franchises because of the options they receive as part of the purchase. Technically speaking, when you buy a franchise, you’re investing in an asset. And in the world of personal financial planning, it’s always hoped that those assets will mature in value over time. Some clients buy into a franchise operation with the intent of building the business up and selling it at a profit down the road. Others may be interested in passing the business down to relatives, as part of a generational legacy business they want to keep in the family.

The now-famous study, “Determinants Impacting Resale Premium Disparity When Selling a Small Business: A Predictive Non-Linear Approach,” was published in full in the Journal of Business and Economic Studies (JBES) in 2022. You can access the comprehensive research by following this link.

Let’s Chat!

If you’d like to know more about franchise opportunities and ownership, please get in touch. FranNet of DFW & Oklahoma is uniquely qualified to match your potential with the possibilities that come from small business ownership through franchising. All you have to do is allow us to be your guide. Our no-cost, no-obligation consultations have helped hundreds of entrepreneurs in North Texas and Oklahoma secure a future that belongs to them and them alone. If you’d like to get started on your own entrepreneurial journey, we’d love to introduce you to a whole new world of possibilities through franchise ownership.