New vs. Established Franchise Opportunity

A new franchise opportunity presents different considerations compared to an established business

 
Let’s assume for a moment that you’re the type of person who can tolerate a reasonable level of risk. As such, you’re prepared to take up a new Greenfield franchise opportunity. The franchisor has not operated from a location in the area or within the territory. What should you look for, what are the questions to ask and how do you arrive at a commercially sound decision?
 
Some of the benefits of taking on a new Greenfield franchise opportunity include:
 
  • No goodwill is payable to a previous franchisee
 
  • It is a brand new operation and the local reputation of the business can be established as desired
 
  • If the franchise opportunity is site based, the landlord may be prepared to make a contribution toward fit out and/or negotiate the lease terms to link rental to sales levels.
 
Obviously, the balancing factor is that you will not have the certainty of a proven trading history for that particular location.
 
An established franchise opportunity enables you to take some comfort in the proven trading history. So, in effect, it is generally perceived as a lower risk option. However, you may have to deal with the history of the previous franchisee. If the premises or vehicles are looking a little tired, a refurbishment or upgrade can restore the appearance. Don’t forget the current franchisee’s reputation in the market – which could be good or bad. Similarly, existing employees could be a positive or a negative influence. A key issue to consider is the potential for further growth of the business; is there more growth to be had or has it reached its peak?
 
There is no substitute in franchising for having detailed and accurate historical financial information for the performance of a business. The quality of the numbers is crucial and frankly, some examples defy belief – they lack detail and in some cases, any semblance of accuracy.
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