The restaurant brokers recently worked with a buyer who was considering a start-up yogurt franchise and comparing it to an independent yogurt restaurant for sale. We had a long conversation about the pros and cons of buying something that is established and earning cash flow versus the start up.  Some of those lessons may be helpful to you in comparing the pros and cons between:  buying a franchise restaurant startup, paying for a new franchise and doing the launch yourself or purchasing an established independent restaurant.

When you buy a franchise restaurant for sale, you’re getting the security of a brand name that is known and respected (you hope!) in the marketplace.  New customers will visit your location because they know the brand and have learned to expect the consistency of operating standards between multiple stores.  Depending on how large the franchise is, you may also be getting the benefit of national or regional television advertisements as well as professionally produced media to support your store.

All of that sounds great to the new franchisee and are definitely reasons to move forward.  However, the restaurant brokers would tell you that the BETTER option is to not limit yourself to choosing between a new franchise versus an independent and instead, go for the gold with a franchise re-sale or second generation store.

Why?  Well, you get all of the benefits listed above, security, brand name that is known and consistent operating standards. What you ELIMINATE is the risk of choosing the right location, a very large capital expense, building your business from scratch and zero earnings.  An established franchise restaurant for sale is the triple winner.  It has a tried and true location.  It also has up to date financials that demonstrate exactly what the sales and earnings look like.  Lastly, you often buy for pennies on the dollar of the original build out.  It is commonplace for a new franchise to cost $350,000 or more to get off the ground.  That’s before you get one dime of profit (though the franchisor, remember, gets paid for every dollar of sales – whether or not you are profitable).  When you buy an existing franchise restaurant for sale, you start with earnings and you pay based on those so your entire capital expense is based on RETURN, not hoped for return.

As restaurant brokers, we are often called in to help those who bought into the latest franchise fad and want to just “get their money out of it.”  They are often disappointed to learn that while they liked the opportunity, re-selling “potential” just doesn’t happen.  The second owner buys on cash flow and ultimately, gets the lowest risk and the best deal.

The other option is to buy an independent concept that has all the hallmarks of the franchise that is profitable. Here’s a case study on what my recent buyer was looking at:

	Sweet Monkey Yogurt Franchise*1	Existing Yogurt Independent*2
New Franchise Fee	$30,000	$0
Ongoing Fees	6% of Sales	0% of sales
Financial Requirements	$350,000 Net Worth, $150,000 Liquid	$450,000
Time Before Opening	90 days	0 days - Up and running
Current Sales	$0	$580,000
Build Out Vs Acquisition	$150,000 - $350,000	$450,000
Current Earnings	$0	$225,000
Training	10 Days	10 Days

*1 Source:  Sweet Monkey Website   *2 Source:  We Sell Restaurants Listing 3785

As you can see from the table above, you can invest $350,000 for zero earnings and the potential for success or buy an existing independent restaurant at $450,000 and pay it off in two years from earnings of $225,000.

These are the discussions you should be having with your family and yourself before you risk hard earned investment dollars.  The restaurants brokers obviously like a model where you buy either an established franchise restaurant for sale or established independent.  There’s no guesswork, you know up front that the business is viable.  Your risk is seriously diminished and your return is on the books.

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