A franchise is a joint venture between a franchisor and a franchisee. The franchisor is the original business. It sells the right to use its name and idea. The franchisee buys this right to sell the franchisor’s goods or services under an existing business model and trademark. However, some franchisors have company-owned stores that the home office manages and runs. Occasionally, the franchisor will offer the sites for sale to prospective franchisees. If they become available, a re-franchised site can be an excellent investment. The question is would it be right for you?
What Does Re-Franchising Mean?
Each of these brands leverage “refranchising.” Refranchising is the selling or conversion of company-owned stores to existing or new franchisees. Refranchising is not a new concept but is an increasingly popular trend.
Let’s look at the reasons for a franchisor to sell a thriving franchise:
- Location – The franchisor may want to expand in a different geographic region and this site is too far away.
- Finances – The franchisor may need liquidity for a new project that demands capital investment.
- Profit – The sale of the franchise may provide more income to the franchisor through fees than it does as a property owner.
- Legal conflicts – The franchisor may own the franchise because he was the first to refuse to purchase it because of several reasons such as lack of fee payment or a death. Franchise agreements can require heirs to sell the franchise back to the corporation.
Understanding a franchisor’s motivation for selling will help guide how you approach the purchase decision.
Reasons To Consider Re-Franchised Locations
In simple terms, refranchising is the sale or transition of stores from franchisor to franchisees.
Here are some benefits of refranchising:
- Self-assurance – Data from a real operation, rather than projecting sales and profitably for a new franchise. As a buyer you can feel more confident and sure about future performance.
- Financing – It will be easier to get lower risk loans because of data from the existing franchise.
- Profit – Quick profit because of an up and running business. Employees will be familiar with the brand and the customers already exist. Your profit is already there compared to opening a new franchise.
- Past History – You can do research on the property and find past franchise owners and reasons for ownership change and financial data. Each re-franchised site will have a history to explore.
Refranchising has been becoming more popular in recent years and there have been many franchise companies that have been converting not just one but a significant number of units to a franchise location for franchisees to purchase.
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About Aaron Bakken
Franchise Consultant for The Franchise Consulting Company
Aaron has 20+ years of franchise and independent business ownership experience. He also spent 5 years as the VP of Franchise Development for an international franchise group, growing the franchise to the advent of a private equity buyout. Whether you are looking to buy a franchise opportunity or franchise your business, Aaron knows how to guide you.
No Cost To You
Aaron is paid by franchisors and development companies for bringing them viable franchise investors. So frankly, his clients have nothing to lose by engaging with him but a bit of their time. Aaron helps his clients navigate the complex world of franchise ownership and development and provides long term guidance to help his clients achieve their entrepreneurship goals.