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Are Resale Numbers a Good Way of Judging A Franchise Operation?
Q I am interested in buying a franchise. Thought about a fresh startup and then considered a re-sale. I have been looking at how many re-sales a franchise has at any one time as a guide to how good that franchise operation is in general. Is this fair?
A Most mature franchisors can expect to have around 7-10% of their network for sale at any one time. All franchisees have a life cycle with the typical time to sell being 7 years for a smaller operation to 15 years for larger ones – it all really depends on what is involved. Newer franchise networks have very few available as they are still in the early growth stages. However with longer established and mature systems it is not at all a negative sign reflecting the quality of the franchise to see locations changing ownership. Basically nearly everyone who buys a franchise will at some point want to sell it.
In many ways the purchase of an existing business is a logical way to buy a franchise. Provided you are considering a fully structured resale, with all the supporting information (not just the P&Ls) available then this is the best route. Resales may cost a bit more in terms of initial cash but overall, when working capital is taken into account, can work out at similar outlay.
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