Franchise Resale vs. New Franchise: Which Is Right for You?
When buying into a franchise system, you typically have two paths: purchase an existing location (a franchise resale) or open a brand-new one. Each option offers unique advantages and challenges, and understanding the differences can help you choose the right fit for your goals.
What is a Franchise Resale?
A franchise resale is when an existing franchise location is sold to a new owner. The buyer steps into an established business instead of starting from the ground up.
Resales happen for many reasons. The current owner may be retiring or relocating. Personal and professional goals are a factor, too. Owning a franchise location may simply no longer fit their goals.
For many entrepreneurs, a franchise resale is appealing because it offers a ready-made operation with a built-in customer base. Still, not every resale opportunity is the same. That’s why buyers struggle to decide between buying an existing business or launching a new franchise.
What Is a New Franchise?
Starting a new franchise business means opening a brand-new location under an established franchise system. It’s one of the most common franchise opportunities, especially for people who want a fresh start, but are drawn to the structure of a franchise brand.
Unlike a franchise resale, there’s no history attached. The buyer just assumes the franchisor’s model, gets training, and begins growing the business.
A new franchise operates within a defined framework, guided by the franchise agreement and outlined in the Franchise Disclosure Document (FDD). The FDD outlines key details such as fees, costs, and legal obligations, so buyers have a complete picture of the franchisor’s requirements.
It requires a buyer to:
- Review the Franchise Disclosure Document.
- Secure financing and pay the upfront costs.
- Choose and approve a building site.
- Complete the build-out with equipment, signage, and design required by the franchise brand.
- Attend training, then launch operations with ongoing support from the franchisor.
Pros of a New Franchise
- Fresh start with no history or baggage
- Ability to choose the location
- New equipment, new construction
- Full training and marketing support from the franchisor
- Lower risk of inherited operational issues, though new franchises still carry startup risks like construction delays or market uncertainty
Cons of a New Franchise
- Ramp-up period to reach profitability
- Must build a customer base from zero
- Market response is uncertain
- Cash flow takes time to stabilize
- Heavy startup workload before opening
Buying a Resale Franchise
Buying a franchise resale is a different path to business ownership. The current owner transfers contracts, leases, and day-to-day management to the buyer. The new owner steps into an established franchise with operations already in motion without the usual delays for construction, approvals, and staffing.
This option appeals to people who want to skip the startup phase and get straight to managing and growing a business. Financial statements and performance history give buyers insight into how the location has been doing. At the same time, buyers need to be careful; not every existing business tells the full story, so due diligence is essential before signing.
Pros of a Franchise Resale
- Existing customer base
- Potential for immediate cash flow, depending on the location’s current performance
- Trained staff already in place
- Historical financial statements to review
- Typically a faster path to revenue than a startup, though transition challenges can impact timing
Cons of a Franchise Resale
- Higher upfront cost than a new location
- Possible outdated equipment or facility
- May also need updates to match current franchise development standards
- Reputation challenges if the previous owner left issues behind
- Lease or contract obligations tied to the existing business
Investment and Financial Considerations
Costs can vary between a franchise resale and a new franchise. With a new franchise, buyers face franchise fees, construction, build-out, equipment, and working capital needs. These are usually predictable, and they are covered in the FDD.
With a franchise resale, the purchase price may be higher due to the existing cash flow and customer base. There may be a transfer fee in addition to royalties payable to the franchisor. Buyers should also plan for working capital to cover operations during transition.
There are financing options for both scenarios. For new franchises, buyers often use SBA loans or franchisor financing programs. For resales, some buyers use SBA loans, while others negotiate seller financing if the current owner agrees. Comparing costs side by side helps business owners make informed decisions about affordability and profitability. It also clarifies total investment, potential ROI, and long-term financial sustainability.
Due Diligence for Franchise Resale
Whether you’re buying a franchise resale or a new franchise, the review process before signing is critical. Take a careful look at the numbers, contracts, and the overall opportunity during due diligence. Many business owners underestimate this step, but skipping it can lead to expensive surprises later.
For franchise resales, check:
- Financial statements for at least three years
- Lease terms, contracts, and equipment condition
- Reputation with the existing customer base
- Staff performance and retention
- Approval process with the franchisor
In addition, review the Franchise Disclosure Document (FDD), since you’ll sign a new franchise agreement and assume obligations outlined by the franchisor.
For new franchises, review:
- Local market research
- Site selection and traffic potential
- Support, training, and marketing tools from the franchisor
- Estimated costs (outlined in the FDD as ranges, but actual costs may vary by location and market)
Many buyers work with a business broker or franchise consultant during this step to confirm details and avoid surprises.
How to Choose Between Resale and New Franchise
Personal goals and risk tolerance shape the decision to build from scratch or buy an established franchise. A franchise resale may appeal to those who want to hit the ground running, while a new franchise fits those who prefer a fresh start (even if it means sacrificing immediate profitability).
Also consider your preferred level of involvement. Buyers who want less setup work may lean toward an established franchise. Those excited about entrepreneurship and shaping a business may favor a startup.
Industry and market trends should guide the decision, too. A growing sector may reward new franchise openings, while stable or saturated markets may make resale opportunities more attractive.
Either way, reviewing the franchise system, the franchise brand, and the franchise agreement helps future business owners step into business ownership with clarity.
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