We recently discussed the inspiring messages from the keynote speakers at the Multi-Unit Franchising Conference (MUFC) in Las Vegas in March 2025. Data from MUFC showed that 65% of franchisees expressed interest in acquiring operating franchise businesses, which explains why resales were a significant topic of discussion among the attendees I spoke with between sessions.
The challenges and considerations for buying an existing unit are clearly on the minds of franchisees in New York and nationwide. I know of several NY multi-unit operators and franchisees who went all-in on purchasing a successful unit in their franchise system, only to later realize the various obstacles.
In an effort to avoid this dilemma, let’s discuss best practices for NY multi-unit operators and franchisees looking to expand their presence by purchasing established businesses.
Benefits of Purchasing an Existing Franchise Unit
Acquiring an established franchise unit offers distinct advantages that can significantly reduce the assumed risks in new business ventures.
Revenue generation. The most immediate benefit is the faster path to revenue. New franchise locations typically require more than a year to reach profitability, but existing units can provide cash flow from the outset. This revenue stream helps offset operating expenses and debt service obligations from the outset, creating a more stable financial foundation during the critical transition period.
Inheriting customers. This streamlined revenue generation is tied to the most valuable trait of the location–the established customer base. These existing relationships represent not just immediate revenue but also potential referral sources and testimonials. The goodwill developed by the previous owner becomes an intangible asset that would otherwise take years to build. While maintaining this customer base requires careful transition management, it provides a significant competitive advantage over new franchise locations.
Pathway to ownership and reputable franchise systems. From a practical standpoint, resales may represent the only viable entry point into premium franchise systems. Many popular brands have limited or no territories available for new development, particularly in desirable metropolitan markets. For entrepreneurs committed to specific franchise concepts, acquiring an existing unit may be the sole pathway to ownership. This reality makes resale opportunities particularly valuable in mature franchise systems with strong market positions and limited territorial availability.
Challenges of Franchise Resales
The acquisition of existing franchise units also presents significant challenges that prospective buyers must carefully navigate.
The initial financial commitment typically exceeds that of developing a new location due to goodwill premiums demanded by sellers. This higher entry cost reflects compensation for established operations and revenue streams, but buyers must determine whether this premium delivers proportionate value compared to building a location from scratch. The increased capital requirements may exhaust financial reserves that could otherwise cushion operational transitions.
Refurbishment is costly. Franchise systems often mandate that acquired units be upgraded to align with current brand standards. These capital improvements, which may include facility renovations, equipment upgrades, or technology implementations, represent a significant unbudgeted expense that erodes profitability and return on investment (ROI).
Complexities of tax documentation. Lenders universally require verified financial statements, including recent tax returns, to assess the historical performance and financial health of the business. However, systemic delays within governmental agencies, such as the IRS, can impede the timely provision of these documents. The inability to furnish lenders with requisite tax information can halt the financing process, delaying or even terminating the acquisition due to regulatory hurdles and lender risk aversion. This economic uncertainty underscores the importance of comprehensive due diligence and risk assessment before committing to a franchise resale.
Aligning franchise agreement with a commercial lease. The new owner’s primary objective is to be able to move right in. This is accomplished by establishing a lease term that directly mirrors the franchise agreement’s duration, creating a co-terminus relationship. This alignment safeguards the franchisee, preventing situations where the lease expires before the franchise agreement or vice versa. To further protect the franchisee’s interests, a franchisor’s addendum is typically incorporated into the lease. This addendum allows the franchisor to maintain a degree of location control without assuming direct liability for the property.
Looking Forward
The details above mark just some of the upside and downside risks to resales and purchasing an existing unit.
Expanding from a single unit to multiple locations can be an exciting goal, with proper planning. NY franchisees and multi-unit operators who collaborate with franchise lawyers will be positioned to strategize for the nuances regarding real estate leases, franchise agreements and dispute resolutions.
Contact Lusthaus Law
Lusthaus Law’s website is a resource for New York franchisors and franchisees. We have published two downloadable and complimentary e-books and our Insights blog is regularly updated to reflect industry trends, FAQs and recent achievements in client representation.
Contact us today to learn more about how Lusthaus Law P.C. can help you navigate a clear path for your franchise’s successful future.
