Should You Buy an Existing Franchise Instead of Starting One from Scratch?
When most people think about franchising, they picture cutting the ribbon on a brand-new location. But there’s another path: buying an existing franchise from a current owner.
On the surface, this option can feel safer. You inherit customers, staff, and revenue from day one. But it isn’t always that simple. Sometimes, sellers are cashing out after building something valuable. Other times, they’re trying to escape a failing business—or even a broken franchise model.
So, how do you know which path makes sense for you? Let’s break it down.
Valuation and Cost Considerations
Existing Franchise (Resale):
Pros: Immediate cash flow, trained staff, and a customer base already in place. In some cases, you may even get a discount if the business is struggling.
Cons: Valuation can be tricky—are you buying future earnings or yesterday’s growth? You also inherit lease terms, equipment, and any hidden liabilities.
New Franchise (Start from Scratch):
Pros: A clean slate with new equipment, the latest build-out standards, and no baggage from a prior owner.
Cons: Higher upfront costs and no revenue while you ramp up. You’ll need significant working capital to cover the early months.
Two Types of Resales
Not all resales are created equal. Broadly, they fall into two categories:
Healthy, Profitable Resale:
Built by an owner who’s ready to exit.
Commands a premium because risk is lower and cash flow is immediate.
Easier exit strategy down the road—but remember, you may be paying for growth that’s already happened.
Usually backed by a strong franchisor, though due diligence is still required.
Struggling or Distressed Resale:
Losing money due to poor management, location issues, or systemic flaws.
Can be bought at a discount, but requires capital, patience, and operational skill to turn around.
Risk is compounded: you need traditional business due diligence and franchise system due diligence.
If the franchisor’s model is weak, even your best efforts may not save it.
Training and Operational Readiness
Existing Franchise:
Pros: Staff, systems, and customers are already in place.
Cons: You may inherit training gaps or “bad habits.” Some franchisors offer less onboarding for resale buyers.
New Franchise:
Pros: You get the full training package and can build your team from scratch.
Cons: Recruiting, training, and shaping culture takes time—and can delay profitability.
Cultural Fit and Risks
Existing Franchise:
Pros: Community awareness and brand reputation already exist.
Cons: Employees and customers may have loyalty to the prior owner, making transitions bumpy.
New Franchise:
Pros: You control culture and reputation from day one.
Cons: It takes time to establish.
The “System Risk” Factor
Here’s the piece too many people miss: whether it’s a resale or a new franchise, you are buying into someone else’s system.
That’s why due diligence on the franchisor is non-negotiable. Even a strong-looking unit can fail if the system itself is weak. Conversely, a proven system can make both resales and new launches successful.
Your checklist should include:
Scrutinizing the Franchise Disclosure Document (FDD).
Reviewing the Franchise Agreement.
Talking to multiple current and former franchisees.
Asking hard questions about turnover, profitability, and the quality of support provided.
Without this deeper analysis, you risk stepping into someone else’s problem—whether that problem comes from the seller or the franchisor.
Exit Strategy
Existing Franchise:
Profitable resales offer an easier exit path—but premiums paid up front may limit upside.
Distressed resales can deliver big returns if turned around, but failures are common.
New Franchise:
Clean operating history can be attractive to buyers—if you succeed.
But if the ramp-up falters, valuations will reflect it.
Bottom Line
There’s no universal “right choice.”
If you want cash flow from day one and are willing to pay for it, a profitable resale might be best.
If you like turnarounds and can stomach risk, a distressed resale could work—but only if the system itself is solid.
If you want a clean slate, with full training and culture-building from day one, then starting from scratch could be your best bet.
But remember: the system is the real product you’re buying. If the franchisor lacks strength, transparency, and profitability, neither a resale nor a new unit will deliver what you’re hoping for.
Final Thought
As someone who has been on both sides of this equation—as a franchise buyer and later as an advisor—I’ve seen how easy it is to get swept up in the promise of franchising without digging deeply enough into the model itself.
That’s why I founded Franchise Clarity: to help professionals evaluate both resales and new units with the kind of rigorous due diligence most people don’t know how to do on their own.
👉 If you’re considering buying a franchise—whether it’s an existing location or one from scratch—don’t go in blind. Let’s talk about how to evaluate the risks, the system, and the numbers with clarity. Use this link to schedule a free Intro Call.
