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Can You Find Success in “Re-Opening” a Previously Failed Franchise Location?

Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

Date: 01/04/2016 | Category: Buy a Franchise | No comments

 

Recently on satellite radio I listened to a radio advertisement, allegedly, by a national franchisor promoting the resale of what I believe to be previously closed franchise locations. The franchisor is allegedly Quiznos and this morning I checked out their website relating to their promotion and sale of opportunities relating to the re-opening of closed Quiznos locations. Basically, the website is promoting and offering prospective franchisees the opportunity to acquire rights to own or operate closed Quiznos locations. Presented as a low start-up cost opportunity, the website operator makes the following promotional statements about this Quiznos re-open opportunity:

“Own a Big Brand without a Big Investment.  Jump into a proven business system for as little as $12,500 down. Own your own business in as little as 90 days.”

While I readily admit that I have not reviewed Quiznos disclosure documents respecting this alleged reopen opportunity, here is my take on this advertisement and potential opportunity:

Understand Why the Closed Location Originally Failed

Franchise failure resulting in closed stores  may be attributed to many factors and may not necessarily be attributed to the the Franchisor. Failure could be attributed to a deficient and non-performing franchisee. However, when a franchisor possesses an inventory of closed stores and is looking to resell these opportunities you must question whether or not the closed stores (and especially the particular store that you are considering) may be attributed to failings or deficiencies on the part of the franchisor, the franchise system, or the business location. I.e., Is the continuing royalty too high? Is the food cost too high? Is the rent reasonable? Is the advertising program insufficient? Does the location generate enough traffic?  You must understand what contributed the original store closing and insure that the facts and legal obligations that you are undertaking are different.  That is, learn from the mistakes of others.

Your Investment Goes Far Beyond Your Initial Out of Pocket Expense

When buying a franchise your investment goes far beyond out of pocket expenses.  Although this opportunity is presented as one with limited start up costs, you must also consider the loan obligations that you will be agreeing to and assuming.  While your out of pocket may be nominal you could be acquiring substantial debt obligations.  Also, always remember that your time has value and in and of itself represents a substantial investment – especially if your store is not generating a profit.

Don’t Just Jump In

I think that you probably know this already, but we all need to be reminded of this critical point. So, do not just jump in. Due diligence is key.

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