Buying Into a New Franchise System

by FMS Franchise | Case Studies
3 minutes
Buying Into A New Franchise System
Table of Contents

The Benefits of Getting in on the ground floor of a Franchise System

New franchise systems are launched every year that set out to change the business and branding landscape in the franchise marketplace.

For a franchisor, the most difficult franchises to sell are the first ten.  From a franchisee’s perspective, the question is why would you invest in a new franchise model when they don’t have the hundreds or thousands of units to validate the business model?

Prime Territories Available:

With few exceptions, there will be a large selection of available territories.

Also, because it’s a new franchise there may be an opportunity to obtain a first right of refusal for additional franchises or territory. Also, a chance to lock in fee rates for additional territories as a price protection against future appreciation(see build value) There is a great opportunity to build your market in a strong territory and expand from a center of strength.

First to market:

The uniqueness of the new franchise concept can attract interest and generate strong appeal. Depending on the industry and type of franchise, some new franchises start off very fast. This can be a plus for the first wave of franchises.   A recent study showed that of 294 category market leaders over 90% were first to market.

Let’s make a deal:

An opportunity to negotiate more favorable terms in the franchise agreement. In general, franchisors that are starting up want to build a foundation of new franchisees. This means that some franchisors are more willing to concede some items that they would not when the network is larger.

Help build value in your investment:

Initial franchise fees and ongoing royalties are often lower for a start-up. Because it’s a new franchise, the fees should be a bit lower since there is no proven track record.

Wise investors always have an exit strategy, the low initial fee can be a great way to build equity faster.  Most franchisors will also be willing to waive a transfer fee for first franchisees buying multiple units, allowing for a more profitable build-and-sell strategy.

Owner Financing Available:

There may be some financing available. In some cases, a start-up franchisor may be willing to finance a portion of the initial franchise fee.   A true market of a partnership is trust and faith.  What better way to show trust is the have the franchisor grant a loan on a business-worthy basis (rather than credit-worthy)

TLC for the first:

Most franchisors take a more nurturing and supportive role with the first group of franchisees. A new franchisor wants to avoid franchisee failures as much as possible and will be willing to provide assistance above and beyond what is required.

The first franchisee also has a greater chance to have lots of influence due to the longevity of the relationship with the franchisor.  Influence is important as the brand becomes more powerful.

For more information on how to invest in a franchise business, contact us:  (800) 610-0292.

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