Should You Buy an Existing Franchise During a Pandemic?

Legal Article

Should You Buy an Existing Franchise During a Pandemic?

Many would say starting a new business and buying an established franchise would be a terrible idea during a pandemic. However, it is, in fact, a good time to consider buying an existing franchise. Below are a few reasons why buying an existing franchise right now can be a great long-term investment and a few pieces of information to consider before you do so.

Benefits Associated with Buying an Established Franchise

Most entrepreneurs want to create a company from scratch. Doing so allows them to can mold and form the business in whatever way they desire. However, there are a few reasons why one should consider buying an existing franchise over opening a new location.

First, the main benefit associated with buying an existing franchise is that there is already an existing customer base. You know what revenue should look like and can create a plan to further build your presence in the area. This means that you are either buying into a business that will require little maintenance or you are investing in a location that desperately needs you to utilize your own creative business plans. There are benefits and drawbacks to either scenario. Most of the time, buying an established franchise location allows for the freedom and business formation process entrepreneurs desire.

Secondly, there are potential additional perks that come with the purchase of an existing franchise. When buying a new location, you only have the support of the main franchisor. However, when buying an existing store, you can also negotiate with the seller of the location to receive post-closing consultation. This is typical in most transactions and can extend as long as a year after the sale. This consultation means that you will have the ability to pick the brain of someone who knows the business model, location, and community.

Is Buying a Franchise During an Economic Slowdown a Good Idea?

With news about small businesses shutting down across the nation, it may seem like a poor time to become a small business owner. While starting a new business may be difficult, now is a great time to invest in an established franchise.

Established franchises—just as with most businesses—are currently experiencing substantial economic loss. While this downturn will be only temporary, it may be too much for the owners of a franchise to sustain even if it is only a short-term issue. This situation creates an extraordinary opportunity for investors to buy a franchise. As the pandemic has created great economic losses, one should be able to buy an established franchise at a much lower price then pre-COVID-19. With extraordinary brand recognition, these businesses will be able to boost revenues much quicker than their smaller competitors.

While a deal is likely if buying an established franchise location, franchisors have not yet begun to discount franchise fees or royalties for start-up franchises. Effectively, buying an existing franchise could offer monetary savings while also letting you gain knowledge from someone with experience. Overall, if you have the financial resources, you could help a business thrive in a way the previous owner couldn’t.

Characteristics of an Investable Established Franchise

While brand recognition plays a large part in sales, you should spend time researching before investing in any franchise. Furthermore, large brands may be able to quickly recover from an economic downturn. However, do not completely ignore the current recession’s potential impact on the future of the franchise. Two characteristics to review before buying a franchise include the individual financial health of a location as well as the health of the franchise system in general. There may be certain established franchise locations that simply do not receive enough revenue to be profitable businesses. This also applies to the franchising body itself as you should spend time reviewing projected growth charts for the entire industry. There may be outliers. However, understanding the projected sales from an industry can play a key role in deciding if you invest.

As with any business decision, buying a franchise should not be done without help. If you need assistance working through the purchase process, contact Antonoplos & Associates for legal advice.