Key takeaways
- A resale means buying an existing franchised store from its current owner, with the franchisor's blessing.
- The franchisor has to approve you. Budget time and fees for that.
- Check the term left on the franchise agreement and the lease, and any refit you'll be on the hook for.
- Talk to other franchisees. They'll tell you what the brochure won't.
Buying a franchise resale is a bit like buying a second-hand ute from a mate who’s kept the logbook. You can see where it’s been, what it costs to run and whether it’s got any rattles. That’s the big upside over starting a brand-new store from scratch.
But there are a few extra moving parts, mostly because there’s a third party at the table: the franchisor. Here’s what to check. General information only, so get your own legal and financial advice before you sign anything.
What a franchise resale actually is
A resale is an existing franchised store that the current owner (the franchisee) wants to sell. You buy their business, and you step into a franchise agreement with the franchisor, usually either a transfer of the existing one or a fresh agreement.
You get a trading store with history, staff, a fit-out, a lease and a brand. The vendor gets out. The franchisor gets a new franchisee it’s happy with. Everyone wins, if it’s done properly.
We’ve got a few on the books right now, like Sandwich Express Kirwan and Bakers Delight Castletown. Have a look at all our franchise listings.
The franchisor has to say yes
This is the big one. You can agree a price with the vendor, shake hands and crack a beer, but if the franchisor doesn’t approve you, there’s no deal.
Expect the franchisor to:
- Interview you and check your background and finances
- Want you (or a manager) to complete their training
- Charge a transfer fee or a fresh franchise fee
- Possibly ask for a refit or upgrade as a condition
So the sale contract is usually conditional on franchisor approval. Ask early how long their process takes. Some are quick; some move at the speed of a wet weekend.
The documents to get your hands on
You’ll want these before you go unconditional:
- The franchise agreement. How long is left on the term? Is there an option to renew? What happens at the end?
- The disclosure document. Franchisors generally have to give this to prospective franchisees under the Franchising Code of Conduct. It covers fees, the franchisor’s history, disputes, and more. Read it properly.
- The lease. Term left, options, rent and outgoings, rent reviews, and whether the landlord needs to approve the assignment too.
- The store’s actual financials. Profit and loss, BAS, and point-of-sale reports. Not the system average. This store.
Get a lawyer who knows franchising to go through the agreement and lease. It’s money well spent.
Fees, levies and the real margin
Franchise fees come in a few flavours:
- Royalties. Usually a percentage of sales.
- Marketing levy. Another percentage, for national or regional advertising.
- Technology and other fees. POS systems, apps, training.
- Supply arrangements. Some systems require you to buy stock from approved suppliers, and the price you pay matters.
The trick is to make sure the store’s profit figures already include all of these. A store can look busy and still leave the owner with not much once royalties and levies come out. Work out what the owner actually takes home, then value it like any business. I’ve written that up in how to value a small business.
The refit question
A lot of franchise agreements require a refurbishment every so many years, or at renewal. That can cost a fair whack. Find out:
- When the last refit was done
- When the next one’s due, and roughly what it costs
- Whether the franchisor will require it as a condition of the transfer
If a $150k refit is due eighteen months after you buy, that’s coming off the price, or you’re walking.
Talk to the other franchisees
This is my favourite bit of homework, and the cheapest. Ring a few other franchisees in the system and ask them:
- How’s the support from head office, really?
- Are the supply prices fair?
- Would you buy in again, knowing what you know now?
Most will happily tell you more over a coffee than any brochure ever will. If they all go quiet or look at their shoes, that’s information too.
Why resales can be a good start
Done right, a resale is one of the more sensible ways into business ownership:
- Real numbers you can check, not projections
- Trading from day one. No build, no ramp-up
- A system to follow, which helps if it’s your first business
- Training and support from the franchisor
- Staff who already know the ropes
The trade-off is that you’re playing in someone else’s sandpit. You’ll follow their rules, pay their fees and live with their decisions. Some people love that. Some people hate it. Know which one you are.
Questions for the vendor
Finally, sit down with the owner and ask: why are you selling, what would you change, how many hours do you really work, and will you stay on to hand over? Their answers, and how they answer, will tell you plenty.
Paying for it
Franchise resales are often financed with a mix of your own money and borrowing, and some franchise systems have relationships with lenders. Have a read of financing a business purchase for the general picture.
Have a look around
See what’s selling now on our listings page, or check the businesses for sale in Hyde Park & Castletown and Kirwan. The Kirwan town profile gives you a feel for the suburb.
Got a franchise in your sights and want to talk it through? Give me a ring. I’ll tell you what I’d check, and you can make up your own mind.
Frequently asked questions
What is a franchise resale?
It's an existing franchised business sold by its current franchisee to a new owner. You take over a trading store with history, rather than opening a brand-new site, and the franchisor must approve the transfer.
Do I need franchisor approval to buy a franchise resale?
Yes, in almost every system. The franchisor will usually assess you, may require training, and will often charge a transfer fee. The sale is normally conditional on that approval.
What documents should I get when buying a franchise in Australia?
At a minimum: the franchise agreement, the disclosure document, the Information Statement, the lease, and the store's financials. Under the Franchising Code of Conduct, a franchisor generally has to give you key documents before you sign, and you should get independent legal and financial advice.
Is a franchise resale better than a new franchise?
Not better or worse, just different. A resale has real trading history you can check, and it's already open. A new site might have a fresh fit-out and full term but no track record. Weigh up the numbers and the risk.
General information only. This isn't financial, credit, tax or legal advice and doesn't take your circumstances into account. Get advice from a licensed professional before you act.