Buying an existing franchise: the resale route

Franchise resales happen when owners retire, relocate, sell to fund other ventures or exit a business that is not working. Buying one can shorten the ramp-up dramatically, and a lender can underwrite real historical cash flow instead of projections. The trade-off is price: you pay for goodwill and established cash flow, and you must be sure the numbers are real.

Where resales come from

• The franchisor's own resale list — many systems help match sellers with qualified buyers.
• Business brokers and marketplaces that list franchise resales.
• Franchisee networks and associations.
• Item 20 of the FDD, which shows how many transfers happen each year in the system.

How resales are valued

Small franchise units are commonly priced as a multiple of seller's discretionary earnings (SDE): profit before owner salary, interest, depreciation and one-off expenses. Larger, manager-run units and multi-unit packages are often valued on EBITDA. Multiples vary by brand strength, growth, remaining term, lease security and how dependent the business is on the current owner. Ask the broker or seller for the valuation method, then check it against comparable sales in the same brand.

Due diligence checklist

• Three years of tax returns, profit-and-loss statements and balance sheets, reconciled to bank statements.
• Point-of-sale reports showing sales by month, customer counts and average tickets.
• Royalty reports submitted to the franchisor — they should match the sales you are shown.
• Payroll records, staff tenure and any key employees who may leave with the seller.
• The lease: remaining term, renewal options, assignment clause and rent escalations.
• Equipment condition and any required remodels or upgrades the franchisor will impose on transfer.
• Customer contracts or memberships, and whether they transfer.
• Outstanding liabilities, liens, litigation and supplier balances.

Franchisor approval and transfer terms

Every franchise agreement controls transfers. Item 17 of the FDD summarises the conditions: the franchisor must approve you, you will usually attend training, a transfer fee is payable (often by the seller), and the franchisor may have a right of first refusal to buy the unit itself. Find out whether you sign the seller's existing agreement for its remaining term or a new agreement on current terms — which may include a higher royalty — and how long the new term runs.

You should still receive the franchisor's current FDD. In some cases the FTC Rule's disclosure obligations do not apply to a sale made by an existing franchisee for its own account, but most franchisors provide the FDD anyway, and you should insist on it.

Financing a resale

SBA 7(a) loans are commonly used for franchise acquisitions in the US. Under SOP 50 10 8.1, which applies to applications given an SBA loan number on or after October 1, 2026, change-of-ownership loans follow standard 7(a) underwriting with specific requirements for equity, seller notes and historical cash flow. Talk to an SBA lender early, because the structure of a seller note can decide whether the deal qualifies. Seller financing remains common for part of the price.

Red flags in a resale

• Sales that dropped sharply in the last year without a clear explanation.
• Financials that only work if you add back large "owner" expenses.
• A lease ending soon with no renewal option.
• Required remodels the seller has deferred.
• A seller who will not let you speak to the franchisor or staff before closing.