Buying An Underperforming Franchise

There is a saying that if something looks too good to be true, it probably is, and this applies to most things in life. In business, however, there is always the opportunity to take something that is failing and to improve it. You just need to understand why it is failing and know that you have the resources and ability to change the situation.

Buying an underperforming franchise may seem like a big risk, but by understanding the reasons the business is failing and examining the wider franchise architecture, you could turn an underperforming business into a thriving success story.

There are many opportunities when it comes to buying an underperforming franchise. It is likely that you will be able to buy the business, its location, stock and perhaps even inherit its existing, fully trained employees at a fraction of what it would cost to buy into the business as a new franchisee. You will have access to its financial records and be able to discuss with both the existing franchisee and the franchisor what difficulties have been experienced and why the business is for sale.

It is likely that the business will have experienced its difficulties due to the existing franchisee having insufficient funds or time to dedicate to the business. If you have more money and more time, this may be a good start to turning it around. Furthermore, if you are already an experienced entrepreneur and are able to apply sales and marketing strategies honed in other businesses or industries to the failing franchise, you stand a good chance of building interest and excitement about the brand.

Perhaps the reason the business is struggling is due to its location. Is the local market saturated with businesses offering a similar product or service? In this case, you could find out whether it would be possible to buy the business but relocate it elsewhere. Is the product or service priced competitively or is the existing franchisee trying to create too large of a margin, which makes it an unattractive proposition to consumers when compared to its competitors? Understanding the price points and being able to apply sensible risk strategies will allow you to determine an appropriate pricing index. The franchisor will be able to guide you in determining whether the current pricing is appropriate and comparable to other locations.

The first step before buying an underperforming franchise is to have an open and honest conversation with both the franchisor and the franchisee and to only progress with the purchase when you are confident that you have the tools, finances and ability to make a success of it.