Real Estate Implications in Franchise Resale Purchases

There are numerous advantages to buying a franchise resale, with the most notable being the opportunity to take over an already established business rather than starting from the ground up. Acquiring an existing franchise often means stepping into a fully equipped facility, eliminating the need for significant investment in furnishings. While this is beneficial, prospective franchisees must also consider critical real estate factors to confirm the value and success of this transaction. For instance, it is essential to understand the implications of inheriting lease agreements, while also keeping in mind space considerations and compliance when contemplating a resale purchase.

Location and space considerations

Finding and securing a new site to open a business can be both time-consuming and costly. For prospective franchisees, purchasing a resale instead can be a profitable venture. However, when evaluating a resale’s real estate, two crucial aspects must be considered: location and space. It’s important to aim for a prime location that is accessible to potential customers and staff. Additionally, confirming the office has sufficient space is critical.

Unfortunately, these aspects aren’t as easy to find as you might think. For example, a previous owner may have downsized the office space due to financial constraints before deciding to sell the business. This reduction can limit operational capacity. While the smaller office may function adequately, the lack of space can hinder future growth. Therefore, potential buyers must assess whether the existing space meets their business needs, goals, and allocate funds in a forecast budget to allow for remodeling or expansion of an office space.

Lease transition, negotiations, and legal compliance

Another critical factor is the transition of the lease agreement. Prospective franchisees must ensure that the lease can be transferred without high costs or complications. The new owner should communicate with the landlord to negotiate favorable terms. These negotiations may involve adjusting the lease duration, certifying the rental rate remains stable, and clarifying responsibilities regarding potential property association fees, utilities, maintenance terms and other fees and charges.

It’s important for prospective franchisees to do their proper due diligence when researching a resale purchase. This process includes reviewing the lease agreement with legal counsel to identify any potential issues, assessing the condition of the property, and ensuring there are no pending lawsuits or charges that could impact the business. Due diligence extends beyond the physical property to include utility transitions, communication with business neighbors, and confirming the continuity of services such as phone systems and internet access.

Financial benefits, risk deduction, and support

From a financial perspective, franchise resales often present cost savings compared to starting a new franchise from scratch. Existing assets such as office furniture, equipment, and supplies are typically included in the purchase, which can represent significant savings. These items, acquired at lower historical costs, can be more expensive to purchase new today.

Purchasing a franchise resale can also reduce the risk compared to starting a new franchise. The business's existing client base and operational history provide a proven track record, which can be reassuring for new owners. This established foundation can help mitigate risks associated with new client acquisition and unfamiliar business operations.

Finally, the support from the franchisor is invaluable during the transition. Franchise brokers and franchise development training programs can provide essential insights into the specifics of purchasing a franchise resale. This support helps new owners understand the operational, legal, and financial aspects of the business, resulting in a smoother transition.

The real estate implications of a franchise resale purchase are multifaceted, encompassing lease agreements, space considerations, due diligence, meeting local commercial requirements (such as registering with county, tax assessor, license and permits if needed, etc.) and legal compliance. Prospective franchisees must thoroughly evaluate these factors to make informed decisions that align with their business goals. The financial benefits, reduced risks, and support from the franchisor make franchise resale purchases an attractive option for many entrepreneurs. By carefully navigating the real estate aspects, new franchisees can position themselves for success in their new venture.

Aracely Melendez is a franchisee with Express Employment Professionals.