There are many elements to consider when deciding which franchise to buy including whether to buy a new franchise or an existing franchise unit. There are pros and cons to both options that will become clear while doing your research and due diligence. We have outlined some of these below.
An existing site will have trading history you can consider in your assessment of the franchise opportunity (which a new site doesn’t) and may already be operating profitably, however there are other elements to consider.
Why is the existing franchisee selling?
Franchisees don’t always leave a business on bad terms. Some franchisees are ready for a new challenge, have made enough money and are ready to retire, or their situation may have changed. However, sometimes franchisees leave because they’re unhappy with the lifestyle or business returns.
If there are a lot of franchise units on the market for a particular franchise brand, this could be a warning sign that there are some internal issues affecting the franchise.
Speak to existing and former franchisees
As part of the franchise recruitment process in Australia, franchisors are required to give prospective franchisees contact details of existing and former franchisees for up to three years prior in the Disclosure Document.
By speaking with as many franchisees as possible you’ll be able to get an idea about what being a franchisee in that franchise business is going to be like – both the good and bad elements, whether buying a new or existing franchise.
Location, location, location
A key element to consider is the franchise site location. Whether it’s an established business you’re buying or a brand new site, even if the franchisor suggests the location, it’s up to you to do your own due diligence to ensure it’s the right location.
It’s important not to feel rushed by the real estate agent or business broker when making a decision and take your time to evaluate the location. There are a number of site selection experts who can assist you, and do some analysis on your own.
Tips on site selection from franchise site selection expert and Spectrum Analysis Managing Director Peter Buckingham are included in Module Three of the Pre-entry Franchise Education Online Course (Free) offered by FranchiseED and supported by the Australian Competition and Consumer Commission.
ABS Demographics & Key Success Attributes
One of Peter’s tips to assist with your own site selection included in the program, is to visit the Australian Bureau of Statistics (ABS) website. Under the ‘Census Data – Data & Analysis’ tab of the ABS website there is a ‘Quick Stats’ section, which allows you to enter a suburb name or local government area to reveal a map of that area with the basic demographics comparing that to the Australian average.
If you know your target market this is one element that will help you identify if the site is in the right area. You may also like to ask the franchisor about stores in similar locations or formats. It’s a good idea to go and speak with those franchisees (as well as others in the system) to find out about their experiences.
If you’re looking at opening a new franchise site, it is worth asking the franchisor which are their most successful franchisees and identifying the key attributes of those franchise sites, so you can find a location that shares those attributes.
Additional franchise buying tips
Speaking to existing franchisees, knowing why a franchise site is for sale and location are just a few elements to consider in buying a new versus existing franchise site. In Part Two of this series, Goodwill, staffing and capital will also be discussed.
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Australian Franchise Marketplace (Free)
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How To Choose A Franchise Online Course
The How To Choose A Franchise Online Course is step two in the journey to becoming a franchisee and packed full of checklists, questions and essential information on how to evaluate franchise sale proposals.