As with anything, there are pros and cons to consider with either- both can be excellent options, but you need to consider the unique challenges, advantages, costs, and risk levels and your long-term goals, timeline, and individual circumstances.
After years of building, purchasing, and re-energizing locations, I’ve learned that the best decisions come from understanding the deeper factors. Below are some factors to consider to help you make a confident decision that’s right for you.
Buying an existing franchise, especially as a new franchisee can feel like the easier and safer option, but it is important to do your due diligence and look beyond the surface. Ask plenty of questions, visit the business, talk to neighbouring businesses, as well as current and potential customers, and speak with employees if you are able. Why is it for sale? What kind of culture of you inheriting, and what can you determine about the perception of the business?
It’s important to determine the current reputation of the business, the quality of the service, and the trust levels of the customer base. We spent many years and a lot of money attempting to fix a very damaged customer and employer reputation. A deeply damaged reputation can make turning a business around difficult. However, with strong leadership, a lot of time and effort (and some great marketing and customer experiences), we turned an extremely underperforming location into our brand’s busiest franchise location in the country. Sometimes starting fresh may be easier and more cost effective, but in this particular case, we took the risk and it paid off.
Employee culture can often be a significant deciding factor when evaluating a purchase. In a smaller market with a close-knit industry, we purchased a location where the previous owner had a habit of monitoring employees remotely and calling to criticize their work- this created long-term staffing challenges for us and it took years to change employer reputation.
In another example, we purchased spotless, beautifully maintained, and successful locations where the staff weren’t treated well and they were eager for change and welcomed new ownership with open arms. Every purchase is different and it’s important to find out as much as you can beforehand.
If purchasing a location that is not upholding the brand’s standards, change can, also, be difficult for current employees. We have lost almost entire teams upon a takeover as they were not interested in becoming brand believers. You need to be prepared for this possibility.
While not legal advice, it’s, also, important to consider the differences between a business (share) purchase and an asset purchase. We prefer asset purchases when possible because we can hire the employees under the new ownership, which gives us a probationary period to determine if they are the right fit for our goals and standards and, also, minimizes liability risks that may carry forward from the previous ownership. It is always good to consult with your legal counsel on what option is best for your unique circumstances- we have done both. An asset purchase can give the new owner more control over rebuilding the culture, protecting against inherited liabilities, and setting new expectations from day one.
Does a purchase make the most sense for you? How does the location fit into your regional presence? Can a well-run neighbouring establishment help create brand presence in the market? Does it minimize the possibility of a competitor coming into the area? Are there renovations needed or any updated required by the franchisor in the near future? At what cost? You must factor these into your purchase price and when weighing the pros and cons of starting new.
Building new can be exciting, but it can also be intimidating if you’ve never done it before! A new build offers a clean slate- you choose the location and the employees and there are no bad habits to undo, no issues to correct, and you can build the culture and the business from the ground up. You minimize the uncertainty of things breaking and going wrong, but that usually comes with a larger start up investment cost. You’re building your customer base from scratch- it may take months or even years to become profitable. A new location has a higher level of uncertainty, so know how risk-adverse you are.
It requires significant time and effort- selecting a site, vetting and hiring contractors, getting permits, ordering equipment, inevitable delays, hiring and training employees, a strong marketing plan, and plenty of project management. New locations and grand openings often generate early excitement, but a franchisee must convert that into long-term customer loyalty.
At the end of the day, there is no simple right or wrong answer whether to build or buy. If a business’ reputation is positive, it has a strong customer base, and you’re prepared for the possible challenges of improving or salvaging the employee culture, you understand the reason for the sale, what upgrades or renovations may be required, and are prepared to put the time and effort into rebuilding any broken systems, purchasing may be the most viable option for you.
If you feel that a purchase may require too much “damage control, time, effort, and money, a new build with a clean slate might be the best route to take.
Ultimately, the right choice is the one that aligns with your leadership style, risk tolerance, and long-term vision for your franchise portfolio.
