Franchise Opportunities: Weighing the Pros and Cons of New vs. Resale

When a franchise candidate explores either a new franchise opportunity or the purchase of an existing resale, they must carefully consider several factors that impact both the short-term and long-term success of their venture. Both paths can lead to rewarding outcomes, but they come with unique challenges and opportunities.

A new franchise offers the chance to start fresh, with the full support and training of the franchisor from the beginning. The candidate can often shape their business from the ground up, deciding on location, staffing, and initial marketing strategies. With a resale, the candidate inherits an already operational business, which includes its advantages and potential pitfalls. The decision-making process for both requires thorough due diligence.

In a new franchise opportunity, one of the first considerations is the brand’s reputation and proven business model. Franchisors typically provide comprehensive training to guide new franchisees through every step of launching and operating their business. This includes site selection, marketing, daily operations, and ongoing support. For many candidates, this level of guidance can be appealing, especially if they are new to entrepreneurship or unfamiliar with the specific industry. However, they must be prepared for the time and effort involved in getting the business off the ground. The franchisee will also need to follow the franchise system rigorously, as deviations are generally not allowed.

In contrast, when buying a franchise resale, the candidate is purchasing an established business with an existing customer base, employees, and operational procedures already in place. This can provide a faster route to profitability, as the groundwork has been laid. However, the candidate must thoroughly evaluate the reasons for the sale. Is the franchisee selling due to declining profits or issues with the location? Or are they simply retiring or moving on to another venture? Financial records must be carefully reviewed to ensure the business is stable and that there aren’t any underlying problems.

One of the key differences between a new franchise and a resale is the level of initial training and support the franchisee can expect. In a new franchise, training is extensive, usually covering everything from product knowledge to technology systems, marketing, and customer service standards. The franchisor wants to ensure that the new business upholds the brand's reputation and operates successfully from day one. Candidates exploring a resale may still receive training, but it might be more limited since the business is already operational. In this case, the training may focus more on transitioning ownership and maintaining existing operations, rather than setting up the business from scratch.

Support from the franchisor may also differ between a new franchise and a resale. New franchisees often receive more hands-on support in the early stages as they establish the business. This can include help with marketing campaigns, grand opening events, and operational issues that arise. For a resale, the existing franchisee may have already built relationships with local suppliers and customers, which could lessen the immediate need for the franchisor's direct involvement. However, ongoing support from the franchisor should still be available to ensure the business continues to align with the franchise system and grows under new ownership.

The financial investment for both options can vary as well. A new franchise typically requires the candidate to pay startup costs and a Franchise Fee. For a resale, the purchase price is based on the current value of the business, including its assets and goodwill. While the initial investment may be higher for a resale, the existing cash flow can make it easier to secure financing and reduce the financial risk associated with starting from scratch.

Ultimately, a franchise candidate must weigh the pros and cons of both options. A new franchise offers the opportunity to build something from the ground up, with the franchisor’s support and the potential to grow the business in a new market. A resale allows the candidate to step into an existing operation with an established customer base, though it requires careful assessment of the business’s health and future potential.

The candidate’s decision should be based on their personal goals, financial resources, and comfort level with either building a business from scratch or taking over an existing operation. Both paths can lead to success, but thorough due diligence is crucial to making the right choice for their entrepreneurial journey.

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About the Author

With over 40 years of extensive experience in small business, restaurant, and franchise development, management, and marketing, Paul Segreto is a recognized authority in the entrepreneurial world. As an executive, consultant, coach, and entrepreneur, Paul has dedicated his career to empowering both current and aspiring business owners. His mission is to pave the way to success by connecting entrepreneurs with the right people, brands, and opportunities.

If you’re a current or aspiring entrepreneur that needs assistance, guidance, or just someone to talk to, please send an email to Paul Segreto at paul@acceler8success.com.