Why all the talk about resales?

Selling your franchise allows you to realise the value of an asset you have built, while buying an existing one as a going concern allows you to access instant cash flow. Derrick Simpson weighs the benefits of taking over an existing franchise as a resale opportunity

Just about every magazine on franchising that one reads these days has at least one article or section on franchise resales. What makes so many people interested in buying an existing business rather than starting with a new opportunity? Why, according to research by the annual bfa/NatWest survey, are over a third of all new franchise owners that sign up with franchisors doing so through a resale opportunity?

Assuming there is an opportunity to acquire an existing business in the area you want with the franchisor in which you are interested, what would be the key reasons for and against buying a resale?

In favour of resales are the clear factual arguments: the business already exists so there is a customer base from day one. This also means the business is trading so there will be cashflow from day one and if there are staff involved in the business - not always of course - they should know what they are doing and so you will be able to focus on absorbing the detail of the business and driving its growth forward.

Against resales could be initial finance as usually a resale business will be more expensive than simply signing up for a new location/territory with a franchisor and paying the initial franchise fee and any set-up costs. That said, it is important to balance the additional cash requirement to feed your cashflow as you grow a new-start from scratch and contrast this with the existing trade, current cashflow, proven business and higher purchase price of a resale.

Above all when considering a resale - and you surely must consider one if it is available in your area - it is essential you receive full information so you can make an informed decision. This is usually in the form of a Prospectus of Sale (sometimes called a Memorandum of Information) and will provide all the background to the business, how it has grown, the scope of the local market, details of any property involved, staff and the costs of any equipment. The Prospectus should also contain details of the financial performance, ideally over at least the past three years, and copies of the accounts supporting these figures.

The final element is to ensure the asking price for the business has been arrived at independently so it is not wildly skewed from the true business valuation. What someone wants to sell a business for is not necessarily reflective of the actual value of that business. An external view on the business valuation should produce a 'ball-park' figure that is representative of the commercial value. This makes negotiations on price, etc., that much smoother and much more likely to succeed. It always helps to have a dedicated person or an organisation to manage the entire resales process, assist in negotiations and coordinate the legal completion of the sale. That way resales transactions can be truly win:win processes.

To find out more about why a resale may be the best way for you to become a franchise owner and to see a selection of resale opportunities available speak to Franchise Resales Limited or visit their website www.franchiseresales.co.uk.