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If there is nothing more gratifying than being your own boss, making your own hours, and having purchasing power, then purchasing franchises for sale may be the perfect deal for you. Besides being a great business model that affords you these gratifying freedoms, franchising is a healthy industry that has shown strong growth in recent years. There were over 220,000 Restaurant Franchises nationwide in 2021. The International Franchise Association projects this number to grow to nearly 225,000 in 2022, which means that opportunities to buy franchises for sale will be available to you as a prospective restauranteur.
Why are franchises for sale experiencing explosive growth? Franchises have a significantly higher chance of succeeding in business than do independent startup businesses. It's one reason our franchises for sale are most popular among our listings—especially after the hardships restaurant owners faced in 2020 during the pandemic. In fact, the Crisis Proved How Well the Franchise Restaurant Model Works. During a time when restaurants had to operate with limited hours and staff, and account for new supplies like hand sanitizers and plexi glass screens, and severely reduce customer capacity, franchise restaurants fared far better than those independent concepts struggling to stay afloat. Why? Restaurant franchises operate with the backbone support of a larger corporate name behind them. So, when the going got tough—and, boy, did it get tough—restaurant franchise operators had a resource to fall back on to meet the bottom line.
Pandemic, crisis, or otherwise, franchise restaurants for sale are considered a safer investment because the legwork of attracting a customer base, developing training, and allocating resources for marketing has already been done. For these reasons, research has shown that these franchises for sale are more valuable than independent concepts and sell for more on the resale market. hese types of businesses are established and experienced. When you buy franchises for sale, it's a proven model. The foundation and business modeTl have been laid and have proven to be solid. The kinks that startups face have been worked out allowing you to earn an immediate income stream. Moreover, an established brand provides owners with training and operating support. Not to mention guidance and advice on management, marketing, and/or personnel. So, if you are looking for a business opportunity that will allow you to be your own boss with the security blanket of a corporate brand behind you, then buying franchises for sale might be your cup of tea.
Opportunities to buy Franchises for Sale are also increasing because of the natural lifecycle of a franchisee’s role with a brand. A typical franchise agreement is ten years with an option to renew for an additional ten years. At or around the seven-to-ten-year mark for these franchise brands, we estimate that as many as 10-15% of their units could be in a state of turnover. This may still be a great brand that is performing well, however, there may be franchisees who are ready to make a lifestyle choice and move onto to something else.
Speaking of a lifestyle change, let’s not forget about those franchise operators who simply ready to retire. Owners, who have had many successful years and are simply funding their retirement through this asset that they have nurtured and grown through the years, will be looking for someone new to take over the business. Enter you, prospective buyer! The pool of franchises for sale increases as these natural lifecycles take their course in any brand, opening more opportunities for you.
Did you know? Franchising itself originated from the consumer’s desire for consistency and recognizable, trustworthy places to eat and drink.
It came of age on the back of the Interstate Highway system in America, and right along with that most treasured American institution, the family car. No longer willing to take a chance on Joe’s Diner in one city or Sally’s Soda Shop in another, families flocked to the “known” quantity where the golden arches meant the same food whether they were in Pittsburg or Topeka. Consistency of product and branding drove strong growth in the franchise model. Some of the best-known brands in America were launched only as late as 1955 (McDonald’s) or 1954 (Burger King). Some of the oldest restaurant franchise brands include Kentucky Fried Chicken which started in 1930 and Dairy Queen in 1940. Fast forward and today, we’re now in the third generation of restaurant ownership for some families, who entered franchising early. The original owners passed the reins to their children who typically added to the store count and expanded a lucrative business model.
The steps in buying a franchise resale are similar to those for any other restaurant with the added need to speak to the franchisor and go through the Due Diligence process with the brand. When and how does that happen? What’s the order of buying franchises for sale? Don’t worry. We will walk through the steps in your journey. It is important to note first, however, that you will want to seek out franchises for sale that are resales—not brand-new franchise sales. All Franchises for Sale offered by We Sell Restaurants will be resale situations, which means that you aren't building an entirely new store in a new location. Read this Franchise Resales Guide to learn more about what this means for you as the buyer.
Step 1:
Begin inquiring on national websites, like We Sell Restaurants, which offer franchises for sales that are resales. Be careful that you don’t get sucked into a portal that is representing new franchise sales!
Step 2:
You will need to collect and prepare prequalification documents to inquire for more information on franchises for sale. ALL franchise brands have prequalification criteria, usually involving some amount of “liquid” capital. Usually, the brand will require the buyer to meet their outlined criteria before the buyer is provided a package of full details on franchises for sale. If you do not meet the minimum financial requirements for a brand with franchises for sale, then the opportunity may not be the best fit for you. The exact prequalification amount varies from brand to brand and listing to listing, with some requiring proof of $50,000 and others seeking upwards of $300,000.
Step 3:
If you meet prequalification requirements and are still interested in franchises for sale, then submit your qualification and request a full financial package on the business like the We Sell Restaurants Business Analysis Tool©. This should give you the full financial results for last year, along with specific franchise information like how much and how long the training is, how many years remain on the franchise term, what the franchise transfer fee is, along with operational information like the number of seats and number of employees.
Step 4:
Now that you have met prequalification and had time to review the full listing details, take time to visit the actual location as a customer. After you have done this, then you can arrange to meet with the owner and view the back of house perspective, as well as ask your questions. When considering franchises for sale, arm yourself with information including these four tips for buying a franchise restaurant.
Step 5:
If you are still interested in the franchises for sale, this is the step where you will submit a contingent offer to purchase and enter due diligence to confirm what you have been provided with backup documentation.This article has tips on how to negotiate terms when purchasing one of these franchises for sale.
Step 6:
Now is the time for the Due Diligence period, which includes meeting with and understanding the Franchise and Franchise Agreement.
After the offer is accepted, you begin the task of Due Diligence and request any additional materials you may need for yourself and the lender. This is also the time when you apply with both the franchise and the landlord for approval. You will go through the same approval process as a new franchisee, though some brands have a separate Discovery Day for those who are acquiring transfers versus new locations.
The franchise will make sure you acknowledge receipt of the FDD or Franchise Disclosure Document which you should carefully review. Address any questions, regarding this, with the franchise at their Discovery Day or by phone.
You will also want to contact other franchisees. The FDD includes the name, phone number, and address of every franchisee so choose a cross section and call them up to understand their experience. There is a mandatory 14 day period between receipt of the FDD and any signature on the Franchise Agreement, and this typically takes much longer than that. The franchise will make sure you acknowledge receipt of the FDD or Franchise Disclosure Document which you should carefully review. Address any questions, regarding this, with the franchise at their Discovery Day or by phone. For key tips and takeaways, review the article, 5 Things Every Restaurant Franchise Buyer Should Study on an FDD.
You will also want to contact other franchisees. The FDD includes the name, phone number, and address of every franchisee so choose a cross section and call them up to understand their experience. There is a mandatory 14-day period between receipt of the FDD and any signature on the Franchise Agreement, and this typically takes much longer than that.
Now that you have seen the process of buying franchises for sale, let’s talk more about what the key costs and metrics you should before buying.
The analysis of a restaurant should include a comparison to key industry variables like food costs, labor costs, and occupancy costs. An expert Restaurant Broker presents financial data on this basis. There are several areas a buyer should assess when reviewing the financial statements of a business offered for sale. These questions are based on common U.S. accounting practices and methods. Focus Areas include Sales, Food Costs, Labor Costs, and Occupancy Costs (rent).
Sales – When it comes to franchises for sale, profitability trends are more important that sales changes. The goal is to always increase sales, but do not panic is you see that sales have decreased in the most recent data points, especially following the turmoil of pandemic years.
Food Costs - A profitable restaurant typically generates a 25%-35% food cost. Because of the impact food costs make on an operation’s profitability, this is one of the first things to examine.
Labor Costs – These costs are determined the cost of labor divided by the sales.
A profitable restaurant typically generates 25% or lower labor costs. High labor costs in a restaurant, available for sale, indicate a failure to manage to schedule and could signal an opportunity for greater profit dollars for a new operator.
Occupancy Costs – These costs are calculated by dividing the total annual rent by sales.
Physical location is important to the restaurant owner. The length and value of the lease as a percent of total sales is a key indicator. Evaluation of a property should include some subjective consideration. In general, rent plus CAMS and all occupancy expenses combined should be 8% to 10%.
Remember that a unit that is not performing today may still be an opportunity for a turnaround situation. After all, the business model is already proven and it may simply be a function of bad or absentee management that is stopping this unit from succeeding. You can learn more in this article titled, "What to know about Buying a Restaurant that isn't Making Money," to learn more about the normal ranges of these critical costs and how you can control them.
So, is purchasing one of our many franchises for sale right for you? Do you possess the entrepreneur characteristics necessary to succeed? Do you have a vision instead of short-term gain? Do you see a profit instead of a paycheck? Are you looking for results instead of routine? If you are ready to explore the endless possibilities of franchise ownership, ask yourself one last question, have you contacted the Certified Restaurant Brokers at We Sell Restaurants yet?
Whether you are already considering these existing franchises for sale as an opportunity or looking to match your skill set to the right concept hot on the market right now, the Restaurant Brokers at We Sell Restaurants have the expertise and experience in the industry necessary to guide you while you explore the franchise opportunity that is just right for you.
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