Suppose you are considering any business ideas or franchise opportunities. In that case, there is a fat chance that the resale franchise is not in your options. In-fact, this franchise option will also not be in the mind of even those interested in safe business ideas or safe franchise opportunities. Though, compared to other businesses, this franchise option is the best alternative for such people. This is so because a resale franchise is inherently a safer option than other business and franchise opportunities. Despite having multiple advantages, the this franchise option is not as popular as a first-hand franchise, which is intriguing. There could be a couple of reasons for this franchise option not being as popular.
(a) people are not aware of this option in the first place.
(b) they do not know about its advantages and other aspects.
Once somebody knows about the resale franchise, then the probability of considering it as one option while starting a new business would be high. To understand this franchise business option, let’s dive straight away into the blog.
Definition of the Resale Franchise
‘Resale’ is made from two words, ‘re’ and ‘sale,’ which means to sell again. This is resale because the first time sale happens when a franchisor sells it to a franchisee.
Whenever a franchisee sells its existing franchise business to somebody else, it is called a resale franchise.
Why does a Franchisee Sell its Franchise Business?
There can be many reasons for selling a operational franchise, and some of them are as follows.
- Some people are adept at building a new business. They start a franchise business, and when that business gets established, they sell it at a good profit. And then again, they form a new business.
- When some people need money, they sell their franchise business and raise the money. And there is nothing wrong with it as franchise business is also a form of investment. Over time, the person invests the money and builds equity in the form of a customer base. Hence selling the franchise business is like encashing investment and equity. Something similar to people who encash their equity by selling them in the stock market.
- Some people plan to leave the city or place where they have a business, so they want to sell their franchise business.
- There is a definite possibility that some people find it difficult to run that franchise business profitably, so they want to sell it.
- At times, there are unresolvable differences between the franchisor and franchisee. As a result of those differences, the franchisee decides to sell its franchise business.
- Many times, franchisee sell their franchise business because they have got a new business idea on which they began working. Hence, they do not have time for their franchise business.
There are many other reasons like this, due to which people sell their franchise business. Whatever the reason is, if someone wants to take a resale franchise, then more than the reason, the focus should be on that business health of that resale franchise.
Advantages of Taking a Resale Franchise
Following are some of the top advantages of the resale franchise
Safer Compared to Taking a New Franchise
The greatest strength of this franchise option is that it is safer than taking a first sale franchise opportunity, as this is a running business. Hence, the new franchisee gets the business with cash flow and customer base. As a result, there is a negligible risk of the unknown associated with the first sale franchise business.
As the this type of franchise is a running business, it has books of accounts. Anybody interested in taking over that business can check them to know the status. In this way, there is clarity about the turnover, monthly expenses, and the margin. If someone knows all these points before taking any business, it becomes easy to make the right decision.
Do not have to start from scratch
Another significant advantage of this type of franchise business is that the franchisee does not have to start from the beginning in this case. Anybody who plans to take a business knows that starting a franchise business from scratch could be a daunting task. For example, in a resale franchise, the new franchisee does not have to find the location or human resources. Similarly, there are multiple small and big activities like these that a first sale franchisee has to do. But the one taking the resale franchise does not have to.
As a resale franchise is a settled business, its systems, processes, vendors, and customers are all fixed. So the new franchisee only has to ensure that the franchise business continues the way it is doing when taking it.
Disadvantages of the Resale Franchise
Anything that has advantages has its disadvantages as well. In this case, the disadvantages are of two types, one which applies to all the franchise businesses. I have written about them, and you can read them here. The second type of disadvantage is specific to the resale franchise. Let us look at them.
As a resale franchise is a running business, hence franchisee would sell it according to its valuation. And because there is footfall, sale, customer base, and profit, then obviously the valuation of such business will be high. Hence, such business does not come cheap unless there is a desperate situation.
Return on investment is on the lower side
Because the resale franchise is expensive, whoever takes it gets a lower ROI than the first sale franchise. Lower ROI should not be a surprise because if the risk is less, profit is also small. And if the profit is less, then ROI would be less too.
Challenging to rebuild the lost credibility
A resale franchise may be available at an attractive price but would not have any credibility among customers. Rebuilding the credibility of such a franchise would be a daunting task and a long term project.
Things to Understand Before Taking a Resale Franchise
Let us now understand which points to consider before taking any resale franchise.
If a resale franchise is available at an economical price, then the person taking that franchise should do a thorough investigation into why it is so.
Before taking such a business, it is essential to pay attention to its facts and condition. If somebody has skills and is confident of turning around that business, it is worth considering. The bottom line is that no resale franchise business is worth considering just because it is available cheaply.
Legal liability: There should be clarity on legal obligations. Like, if there is any legal case on the resale franchise business. If it is so then, one should get complete information on it.
Work culture of the resale franchise: It is essential to understand the resale franchise’s work culture. If the work culture is right, then there is no problem. But if it is toxic, it may take a lot of time, effort, and money to fix it.
These were some points to ponder over before taking a resale franchise. Some other thought on the topic could be read here.
If you understand Hindi then you can watch this video also on the topic.
In conclusion we can say that if taken with complete due diligence then resale franchise is the safest business opportunity.
This blog is created solely for informational and educational purpose. Ideas and suggestions given in this blog are not substitute for the guidance under the expert. Readers are advised to do own due diligence before taking action based on this blog. This blog is not warranted for content accuracy. Reader’s discretion is required.