BUYING A FRANCHISE
RE-SALE

Greyson Legal | Franchise Lawyers have acted for numerous clients that have entered into the franchising industry through purchasing a franchise business.

A franchise re-sale involves the purchase of an already operating franchise business as a going concern from an existing franchisee.

This can be contrasted with buying a "greenfield" site, which involves buying a new franchise territory direct from the Franchisor.

When you buy an existing franchise business from a franchisee by way of re-sale, you will be dealing with at least two parties - the outgoing franchisee (Seller) and the Franchisor. If the franchise business operates from a leased premises, there will also be a third party, the landlord, who will need to give their consent as far as the outgoing tenant and incoming tenant are concerned.

Buying a Greenfield Franchise

At Greyson Legal | Franchising we offer advice and help you through each step of purchasing a franchise business, whether a franchise re-sale or greenfield site.

When considering buying a franchise business, one option is to buy an existing franchise business that is already up and running, has a history of sales and current customer base. Often referred to as a franchise re-sale and which involves purchasing the franchise business from an existing franchisee in the franchise network.

The alternate option is to buy a new franchise territory or new franchise store location, referred to as a “greenfield” franchise territory or “greenfield” franchise site (or outlet).

The greenfield franchise is purchased directly from the Franchisor. Franchisors often list available new franchise opportunities on their website or in other promotional material.

When acquiring a "greenfield" site as a prospective Franchisee, you need to consider additional factors that do not apply to the purchase of an existing franchise business (or re-sale).

What We Do

At Greyson Legal we offer advice at every step of the franchising business conveyance process and assist you with all of the key aspects, including:

help you to determine the type of entity structure you may wish to use to purchase and operate the Franchised Business, such as:- sole trader, partnership, company; or through a trust
make sure you understand the application of the Franchising Code of Conduct;
review and advise you on:
- Franchise Agreement;
- Disclosure Document;
- Key Facts Sheet; and
- related legal documents
assist you to satisfy the Franchisor's requirements for consent to the Franchised Business purchase, including reviewing and advising you on the conditions set out in the Franchisor's Deed of Consent to Assignment;
undertake all requisite searches;
review and advise you on the terms and conditions of the Contract of Business Sale;
review and advise you in regards to any associated lease, occupancy licence or lease assignment documentation;
identification of the tangible and intangible assets to be bought or sold;
assist with any statutory Business licenses;
deal with employee transfers;
ensure the release of security interests held by 3rd parties over the Seller's plant and equipment;
undertake all steps required to settle the transaction;
carry out all work incidental to the transfer of the Franchised Business.

Franchise Due Diligence

Buying a franchise business by way of re-sale can present an exciting opportunity to purchase an existing business that is already set up and operating under a known brand with historical financial figures, other past data and procedures in place.

Buying a greenfield franchise site or territory, on the hand, involves growing the franchised business from ground up. It has an additional layer of risk given the Greenfield site or territory is untested.

Conducting thorough due diligence and obtaining advice from a franchise lawyer, such as, Greyson Legal | Franchise Lawyers is important to help you make an informed decision before committing to the purchase.

For further details, refer to our Franchisee Due Diligence Checklist.

Go to Checklist here

Advantages of buying a Franchise Re-Sale

Buying an existing franchise business by way of re-sale has the advantage that:

the initial set-up has already been done;
there is a trading history;
there is an existing customer base and goodwill;
staff familiar with the business may already be in place;
the supply chain is already in place;
you can see what is already there and assess what needs updating;
access to finance may be easier as financiers can base their decision not only on the Franchise system and your suitability, but also on past business trading history.

Advantages of buying a Greenfield Franchise

Buying a greenfield franchise has several advantages:

you don’t inherit the flaws or faults of an existing franchise that might apply with a franchise re-sale;
the price you pay for the site may be lower than the purchase price to acquire an established franchised business;
you get the advantage of implementing the latest in design and technology (as opposed to purchasing older technology that might apply with a franchise re-sale).

Disadvantages of buying a Franchise Re-Sale

There are certain disadvantages to consider when buying a Franchise Re-Sale, such as:

the purchase price for a franchise business re-sale maybe higher (than a new greenfield franchise) as you will also be paying for goodwill;
there could be underlying problems with the existing franchise business;
being an existing business, the plant & equipment maybe outdated or in need of repair and require modernisation or replacement;
past customers may have had a bad experience with the seller, thereby impacting negatively on the goodwill.

Disadvantages of buying a Greenfield Franchise

There are also disadvantages to consider, such as:

although the franchise model may be proven, the new franchise business itself will be untested within the selected territory;
there will be greater uncertainty about the potential performance of the new franchise;
the new franchise business is being built from the ground up at the selected site or territory, so will take more time to grow;
you will be creating new goodwill - as opposed to buying existing goodwill;
where the new franchised business operates from fixed premises, the franchise outlet will need to be newly fitted out - so additional costs may apply;
as there is no trading history there will be a degree of guesswork as to the expected volume of products and services that can be sold;
there will be initial uncertainty as to quantum of revenue that can be generated and profitability;
as a new franchise outlet you will not have existing employees - if you need new staff and they will have to be fully trained in your systems and processes;
you will need to expend more in marketing in the initial stages to get the franchise business name out into the market;
etc.