Off to a flyer on a resale (Daily Mail franchise story)

Off to a flyer on a resale

By: Linda Whitney

GETTING into business need not always mean starting from scratch. Many franchises allow you to buy an existing business from a previous franchisee — it's called a 'resale'.

Buying a resale is likely to cost more than a new start-up, but you do not have to build up the business from nothing and are likely to be generating an income immediately.

But you will be taking over existing staff and customers from a franchisee they already know, so you must be able to forge relationships quickly.

It might also be easier to raise the money for a resale than a new start. 'Banks find it easier to make the decision to lend for a resale because there are figures to show how the business is doing,' says Mark Scott, franchising specialist at NatWest.

The same figures can help your own decision. 'Ask the franchisee for the annual accounts for the past three years,' says Mr Scott.

For a thorough analysis, take them to an accountant, ideally one who specialises in franchising (for a list, click here to view franchise experts).

Unlike new start-ups, the price you pay can vary enormously, depending on factors including the area, turnover and potential.

Ken Dennis, of ServiceMaster group, which offers five franchises — Merry Maids, Trugreen, ServiceMaster, Furniture Medic and Contract Services — says: 'With more than 900 businesses in the UK, there are always 2 to 3 per cent available for resale, and prices have varied from £15,000 to £750,000 in the last 12 months.'

Typically, with a new franchise, you have to find 30 per cent of the total investment, but with resales, banks might be more flexible. 'We might be prepared to accept 20 per cent, provided repayments are serviceable,' says Mr Scott.

Usually, the selling price is two to three times the net profit of the business in the past year, plus fixtures and fittings.

Don't be afraid to negotiate.

Mr Scott says: 'If the business is not performing as well as others in the network, the franchisee might not be making the most of it. If you can identify the problem and think you could solve it, you might get a bargain.' Investigate why the existing franchisee is selling. Many want to retire, but some sell because of personal circumstances and others for a career change. The true reason could affect your investment decision.

Ask what support franchisor provides for the changeover.

'We provide more intensive support and training on resales because buyers are plunged into business immediately,' says Paul Stanton from the O'Brien's sandwich bar franchise.

Mature franchises, such as Kall Kwik and Prontaprint, deal mainly in resales, and have packages already set up.

ServiceMaster: 0116 275 9000, O'Brien's: 0208 741 7777, Dublcheck: 0800 317 236, NatWest franchising: 0800 092 9117.

ANN AND ALDO BACCINO bought a resold area from commercial cleaning management franchise Dublcheck Cleaning Services in May 2006.

They were previously in sales but now provide cleaning services to commercial clients, running teams of cleaners and managing the business from home.

'We chose a resale because we would be getting an income from day one,' says Ann, 42, from Liverpool.

Ann and Aldo visited existing customers before investing.

They have boosted turnover from £80,000, when they took over two years ago, to £156,000 today, with continued support from Dublcheck.

The couple raised the £30,000 cost of the franchise by getting a mortgage on a property they were renting out.

'If we were to buy another franchise, we'd choose a resale again,' says Ann.

Carol Stewart-Gill, founder of Dublcheck, says: 'Franchisees who buy resales get the same training as those who buy virgin areas, and we speak to all the customers in advance to smooth the way for the changeover.

'The outgoing franchisee also supports the new owner, for instance, by introducing them to existing customers.' She adds: 'A resale has advantages, but it's not always the easiest option. You have to build up relationships with existing customers quickly, so expect to spend a lot of time meeting clients face to face at first.'