Imagine that you just saw a beautiful new neighborhood with lots of on-trend new homes being constructed. It catches your eye and you immediately decide to stop and have a look around at the model homes. As you walk through the models, you see contemporary counters and cabinets, a new type of tile flooring that looks like wood, and the hot colors of the year on the walls. The real estate agent points out the accent tile in the bath imported from Italy and the cut-glass pendant lights that cast special shadows at night.
You are dazzled and in a bubble of contentment when common sense takes over and you finally ask the agent about the price, which turns out to be much more than you can afford. He explains that you can lock yourself into a long-term loan while you work to increase your income to afford the house. He tells you that in several years time, the home will be a good investment but all you can see ahead of you is spending most of your time working and not getting to spend much time in your new home!
You decide to take another path and look at previously-occupied homes. Although some of them need a little love and care, you find that many just require some cosmetic attention: a little paint, some landscaping and the ability to see beyond the obvious. You realize it may take a bit more time to check out the inner workings of the home’s systems such as the plumbing and heating, but you also know that this construction has already weathered many storms. You see a few improvements that you could easily make because you have experience in such matters.
It doesn’t take much to see that this scenario is another way to look at franchising. Many people are drawn to trendy new franchises that are pasted all over the internet and media, which causes a kind of feeding frenzy; everyone wants one. People want to be in on the next big thing. They think perhaps that their franchise is so popular that they can do almost everything wrong and still succeed.
However, the reality is quite different. Although there are still those ‘golden’ franchises that pop up and are very successful (albeit maybe in the short run), the cost of buying a new franchise may be too high for your lifestyle so that you will be taking a bigger risk than you can handle. You will also not know, no matter what the franchisor tells you, just how YOU will adjust to owning a new franchise where the responsibility for attracting new customers, establishing systems, hiring all the employees, and signing vendor contracts falls on your shoulders. Although new franchises usually come with training, it is still very different when an owner is involved in day-to-day operations.
So why is the perception of buying a resale often one of ‘what’s wrong with it?’ Most new entrepreneurs go into a business thinking that no one would ever sell a successful business, one that is making money. There is a general feeling that if a business is doing well than no one should want to leave it. The reality is very different and also has implications for those starting any business.
Different people are in different stages of their lives. Just as in a product life cycle, there is a curve where a product grows, peaks and then falls off. In early years, people want to work longer hours, are more career driven and yearn to get ahead. By mid-life many are busy raising families, shuttling kids back and forth and still trying to secure their future. By later years, many have decided that they just don’t want to work as hard, may have had illness in the family or want to retire.
What does this mean to a franchise buyer? It means that if you view the life cycle of a franchise resale in the same way, then it makes perfect sense that someone would want to sell a successful business, one that isn’t as shiny or new, or one that is just too much of a burden for them to manage. Their loss can be your gain. In many situations, the owner has been less involved in the business (may even be an absentee owner), does not have the skills necessary to keep up with the times or has just plain lost their motivation. This gives a resale buyer an ample opportunity to use their own enthusiasm to create success and rejuvenate the business.
A franchise resale can give you some solid information you might not gain from a new one. You will be able to see solid financials (not estimates), view the actual location and see traffic patterns, meet the employees and see how service-oriented they are, judge how well maintained are the facilities, ask around the community to see what the reputation of the business is and find out other information that might make you feel secure in buying the business. In short, there can be substantially less risk at a lower cost.
Buying a franchise resale may require less financing, may give you better access to financing (you can show the bank a track record), and you may be able to show the bank that you have talent/training/credentials that make you ideally suited to re-energize the business and create a very profitable business. In many cases it is easier to make a positive impact on an under-performing business than it is to maintain the high level of sales if you buy a business that is already at its peak, when you have the added pressure of always having to keep it there. Paying less for a business that needs some TLC means you can implement the improvements and benefit from them yourself!
About the author
Johnny Sellyn is the CEO of Franchiseresales.com