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Buying a Company Owned Franchise Location

In a recent article “Refranchising: Should you Buy In?” Jeff Elgin‚ CEO of FranChoice Inc.‚ discusses a trend that has recently become more popular among franchise companies recently called refranchising or retro-franchising.   The process of refranchising is when a franchise company converts a company owned unit or location into a unit that is available to be sold to a franchisee.  Refranchising has been becoming more popular in recent years and there have been many franchise companies that have been converting not just one but a significant number of units to a franchise location for franchisees to purchase. 

Franchisees considering the purchase of a refranchised location should consider doing thorough research before making a decision to buy into the refranchised unit.  Your main concern as a potential franchisee of the company you are looking into and as potential buyer of a refranchised unit should be “why does the franchise want to sell the unit?”  According to Jeff Algin there are multiple reasons that can trigger a franchise company to refranchise their units:

  • Earnings – Franchise companies invest excess capital often to open new franchise locations on their own or buy our other franchisees and then may eventually decide to sell those units to new franchisees.
  • Operational Experience – Some franchisors feel the need to operate franchise units of their own in their franchise company so that do not lose their operational experience and helps them stay in touch with the issues and details of owning a franchise location. 
  • Training facilities – Sometimes franchisors may buy units for the franchise company but they are not used as franchise store locations but instead for training facilities that can offer hands on training as opposed to classroom training.
  • First right of refusal purchases – Franchisors may acquire units from an existing franchisee in order to re-sell them to a new franchisee that is more effective for their specific franchise system. 

When deciding to purchase a franchise location that is re-opening or a unit that is being refranchised for any other reason always make sure you perform due diligence.  To avoid making a bad franchising decision and for more information on how to perform adequate due diligence read "Why Due Diligence is Critical when Buying a Business or Franchise". 

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By Charles Internicola November 10, 2009

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