If you’ve been looking into buying a franchise, the chances are you’ve heard the term ‘resale’ before. But what exactly is a resale? And does it offer you a better opportunity than a virgin territory? Here at Well Polished, we often have a few resales available for sale and we believe it’s important that any potential buyer has all the facts before they make any decision.
What is a resale?
A resale is effectively when an existing franchisee decides that they would like to exit the business, and therefore puts their business up for sale. As a franchisee with Well Polished, you have the right to sell your franchise at any time.
The reasons for a franchisee choosing to sell are varied and often personal, but here are some examples:
- Change in lifestyle / work circumstances that means they can no longer dedicate the time required to growing the business
- After running the franchise for many years, they decide it’s time to move onto something else
- Deciding the franchise itself or business model does not suit and they decide to sell not long after joining the network
Due to the varied reasons as to why a franchisee may choose to sell, you will find that some resales are priced higher than others.
How do you price a resale?
Here’s where it can get a little confusing… as a franchisee, you not only have the right to sell your franchise at any time but you also have the right to set your own sale price. Hence why you will notice resales for different prices on our website.
As a franchisor, we are always honest with our franchisees who are looking to sell about what a reasonable sale price is. One common misconception amongst franchisees is that they can sell their franchise 6 month’s after buying for the same price they paid, plus extra for any monthly income they’ve generated. It’s important to understand that this is unrealistic. In the same way that a car depreciates in value the minute you buy it, a franchise can do the same if you do not nurture the business.
The reason for this is that a prospective buyer for a resale is no longer buying a fresh opportunity as such, but they’re now investing in an operational business.
On the other hand, if a franchisee has grown their business over a period of time and they now have an asset to sell – they can easily expect to sell their franchise for much more than they paid for it!
For example, let’s say a territory was purchased 2 years ago for £9,995 + VAT. The franchisee has then grown the business and the monthly income has reached £4,000 per month. We would then advise this franchisee to price their territory for sale at ten times the monthly agency fees.
The prospective buyer is then buying a ready made income, and £40,000 would be a reasonable price to pay for a profitable business.
What are the benefits of a resale?
There are huge benefits to buying a resale as opposed to a virgin territory:
- A resale should offer an instant monthly income
- The territory should have a strong organic Google presence
- There is a team of cleaners already registered and working
- The Well Polished brand should now be well known in the area
- You should have a history of data available to help you make decisions on advertising etc
Buying a resale can give you the financial stability you may need from day one, whereas a virgin territory will take a few months before giving you a wage. This is usually the main draw for someone to buy a resale – but also, if your local area is available as a resale, then this would be a huge benefit. Whilst you do not need to live in your territory in order for it to be successful, certain aspects of the business are far easier to run when you know the area.
What are the drawbacks of a resale?
It’s important that any interested party is aware of the potential drawbacks of buying a resale and they can include:
- Inheriting a poorly managed business from a disinterested franchisee
- Having to deal with historic issues that occurred before you took over
- Forging relationships with clients and cleaners that you didn’t sign up yourself
- Dealing with cancellations after the sale (of which, the price was based on the monthly income)
- Transferring payments over from the previous franchisee to yourself
It’s important to note that the above drawbacks do not affect all resales – some resales will not experience ANY of the above issues and the process will run smoothly.
Here at Well Polished, we are committed to assisting in territory resales as much as we can to ensure that the incoming franchisee is satisfied with everything.
Is the price negotiable?
Another important point to note is that a virgin territory is a non-negotiable price, whereas a resale gives you the opportunity to ‘make an offer’. Whether this offer be for a lower value, or for a payment plan that allows you to stagger the franchise fee into instalments – a resale offers you more flexibility when it comes to sale price.
The franchise package
Finally, you should always consider the value of the franchise package that you receive when you buy a virgin territory as often, this package is NOT included when you are buying a resale.
This is because the ‘package’ has already been used by the existing franchisee.
Some specific aspects of the Well Polished package to be aware of is the 3 months free MSF (management service fee) and the 6 month’s funded Google campaign. With the majority of our resales, these perks are not included.
If you’re buying a resale that has a decent monthly income already, then the loss of the package isn’t really a concern – but if you’re looking to buy a resale that is fairly new or undeveloped, it is worth taking into consideration!
So, what’s the best option?
In reality, only you know what the best option is for you. Everyone’s personal circumstances will be different, and they are often what ultimately drives these decisions.
Hopefully this article gives you a clearer understanding of just what a resale is and gives you food for thought on whether it is the correct path for you.
Our sales manager Janine is always available to chat about resales as well as virgin territories, and will be able to give you more specific information about your preferred territory. Simply click here to book in for a discovery call with her.