Buying a franchise can be an exciting way to start your own business, but it’s not the only path you can take. Instead of jumping straight into a new franchise, you might think about purchasing an existing one. This practice is known as franchise resale, and it’s gaining popularity in the Philippines. To make the right choice, you need to grasp how franchise resale works, its advantages and pitfalls, and what to consider when looking for opportunities. This article will guide you through the ins and outs of franchise resale in the Philippines, helping you determine if it’s a suitable route for you.
What is Franchise Resale?
Franchise resale is the process where an existing franchise owner sells their operational franchise business to a new buyer. This means instead of the franchisor starting you off with a brand-new franchise unit, you’re taking over a business that is already established. By purchasing an existing franchise, you gain not just the rights to the brand and its operational blueprint but also the physical space where the business is run, the current staff, a loyal customer base, and sometimes even equipment and inventory. You can think of this as buying a house that someone has lived in before rather than starting from scratch. The business is already in motion, and you are stepping in to take charge.
Why Consider a Franchise Resale?
There are many reasons why purchasing a franchise via resale could be beneficial for you. For starters, the business is often already running, meaning you won’t have to deal with the initial setbacks such as construction, obtaining permits, and figuring out how to operate the business. You’re getting involved with a model that has been tested, which helps lower the risks compared to starting a new franchise. Additionally, the current owner may have cultivated a loyal customer base and established a good reputation within the community—two massive advantages for any new owner. Sometimes, you can even find franchise resales at a lower price than starting a new one due to various factors, like the seller’s urgency to sell or the current performance of the business. Lastly, existing operations can often make it simpler for you to secure financing for your venture.
The Resale Process in the Philippines
The process of reselling a franchise can be more complicated than launching a fresh one. Here’s a simple overview of what you can expect when buying a franchise resale in the Philippines:
- Finding a Franchise for Sale: You can discover available franchises through franchise brokers, online listings, business magazines, or directly from the franchisors.
- Due Diligence: This is a necessary step. You need to examine all parts of the business closely, which includes checking financial records, understanding operational status, reviewing lease agreements, legal documents, and reputation in the local community. It’s also vital to confirm that the current franchisee has permission from the franchisor to sell and to judge the business’s profitability.
- Franchisor Approval: Most franchise agreements will require that the franchisor approves the new owner. You’ll likely need to go through a similar application process as a new franchisee. This ensures that the brand’s standards are upheld, and it’s a good fit for their system.
- Negotiation and Agreement: After all parties are in alignment, you will enter into negotiation with the seller about the sale’s terms. This includes discussing the purchase price, payment options, and any conditions for the transition. It’s smart to seek legal assistance during this step to ensure everything is clear.
- Transfer of Ownership: Once a deal is reached, the ownership of the franchise will be officially transferred to you. This includes the legal process of transferring all necessary licenses, permits, and contracts. Additionally, you’ll likely need to sign the franchise agreement with the franchisor to finalize everything.
- Training and Transition: The franchisor will provide training to help you operate the franchise successfully. A smooth handover from the previous franchisee is crucial during this stage and should be part of the discussions when closing the sale.
Potential Benefits of Choosing Resale
Choosing to buy a resale franchise comes with several advantages:
- Reduced Startup Time: You can skip a lot of the time and effort needed to establish a new franchise because the business operations are already in place.
- Established Customer Base: The franchise may come with loyal customers and an already positive brand image, meaning you could see immediate sales and a quicker return on your investment.
- Trained Staff: If you select wisely, your new team may already be experienced in their roles, which means you won’t need to invest heavily in training them.
- Existing Infrastructure and Equipment: Most necessary tools and store fittings will already be set up, saving you the effort and costs of sourcing these on your own.
- Financial History: Analyzing the sales history, costs, and profitability of an existing franchise gives you insight that projections for a brand-new business can’t offer. This allows for more detailed due diligence.
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Risks and Challenges of Franchise Resale
While there are benefits to franchise resale, there are also risks you need to be aware of:
- Hidden Problems: There might be serious issues with the business that may not be immediately obvious, including location risks, building concerns, permit issues, or staff performance problems. Thorough due diligence is essential to uncover such challenges.
- Seller’s Motives: It’s critical to know why the current franchisee is parting with the business. For instance, are they selling because the location isn’t profitable, or are there other issues that might affect your success?
- Franchisor Approval Process: Even though it’s a resale, you will still need to meet the franchisor’s requirements, and approval is not guaranteed.
- Higher Price Point: Buying an existing franchise can sometimes require a premium price because of established infrastructure and operations. It might be pricier than starting fresh, especially if the current franchise owner has inflated the business value.
- Inherited Issues: You may end up taking on difficult problems like poor team performance, outdated equipment, and even unmanageable lease terms.
Key Considerations Before Buying
Before you decide on a franchise resale, it’s essential to ask yourself some important questions:
- Why is the current owner selling? Their motivations could reveal potential problems.
- Is the location truly good? Is it accessible and convenient for your target customers?
- What is the current financial performance? Ask for audited financial statements to evaluate profitability and performance closely.
- What are the terms of the lease? Check if the lease terms are favorable, or can they be renegotiated for better conditions?
- What is the state of the equipment? Is everything functioning well? Are there any repairs or replacements needed soon?
- What are the terms of the franchise agreement? Understanding the stipulations and obligations in the franchise agreement is vital before finalizing the transfer.
- Are you willing to adhere to the franchise system? Make sure you’re comfortable with following the operational guidelines set by the franchise.
- Have you considered the costs and the risks involved in this business? Are you ready for the investment and its uncertainties?
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Frequently Asked Questions (FAQ)
What’s the difference between buying a new franchise and a franchise resale?
Buying a new franchise means you start from ground level with a fresh location and business setup, while a resale means you are purchasing an existing, operating franchise.
Do I need franchisor approval for a resale?
Yes, approval from the franchisor is usually necessary because most franchise agreements require that any new franchisee taking over an existing location be approved.
Can I negotiate the price of a resale?
Absolutely! The sale price is negotiable based on many factors, including the financial health of the business, the value of its assets, and market trends.
What is due diligence?
Due diligence is an exhaustive evaluation of every facet of the business before you make a purchase commitment. It involves looking at financial and legal documents, operational aspects, and the condition of the business’s equipment and setup.
Will the franchisor train me if I buy a resale?
Yes, almost all franchisors provide training for new franchisees, regardless if they’re purchasing new franchises or resales.
Act Now
Franchise resale can be an excellent entry point into business ownership in the Philippines, offering established benefits that a new franchise might not. However, this journey requires thoughtful research and careful evaluation. While the advantages of an already functioning enterprise can be alluring, your success depends on diligent investigation and a clear understanding of potential risks. If you’re ready to dive into franchise resale, take the time to explore opportunities, consult with experts in the industry, and ensure you make informed decisions that will pave the way for success.
References
- Philippine Franchise Association
- Department of Trade and Industry Philippines
- Entrepreneur Magazine Philippines
- Various business publications about franchising in the Philippines
