Submit
Feedback

Open New Franchise or Grow through Acquisitions?

Written by:
Last Updated by Facundo Bermudez: August 17, 2022
Download Our Exclusive Business Services Guide
Download Now
new business

Background on the Author – Patrick McKinney has experience in a variety of roles in a multi-billion dollar franchise organization including leading strategy, M&A, marketing & sales, and operations functions.  Prior to the franchise business, Patrick worked for a Fortune 50 company, where he focused primarily on international Strategy and M&A.  Patrick began his career as a consultant for McKinsey & Company. 

Your first new franchise

Many franchisees open or buy their first franchise and invest endless amounts of blood, sweat, and tears to build their very own profitable business.  I have often heard from franchisees that opening the first franchise is typically the hardest; however, once they get that first location open, the desire to expand out into new locations sets in quickly.

Shared resources with multiple locations


This desire to expand is not a function of egotism, but rather the realization that there are many cost and revenue benefits that can be achieved by increasing the scale of a franchisee’s operations.


For example, a franchisee who opens his first quick-serve ice cream location maybe be able to better utilize fixed costs associated with things like operations management headcount, back office support (personnel & systems), and inventory warehousing by sharing these assets across multiple locations.  Another example might be a salon owner who is able to offer customers more times and more convenient locations by having multiple stores across a specific geographic area – this scale could reduce customer attrition and potential increase frequency of visit, driving incremental revenue.

You may be saying to yourself, “that all sounds great, but what is the best way for me to expand the footprint of my business?”  Should I build new locations from the ground up (“Greenfield Approach”), or should I go out and buy an existing player in the trade area where I want to expand (“Acquisition Approach”)?  For the purposes of this article, I am going to focus specifically on the Acquisition Approach and will discuss rationale for why you may want to consider expansion through acquisition, as well as a few key items to consider before pursing this approach.

Benefits to expanding through acquisition 

There are many reasons why you may want to consider expanding through acquisition, however, below are a few reasons that I have found to be the most compelling for franchisees.market location

1) Acquiring the best location in a market

Real estate is one of the most important drivers of success for many franchise concepts. Visibility, proximity to target populations, quality of facilities, etc. are all important aspects that drive real estate selection decisions.  As we all know, real estate is a scarce asset and, therefore, it can often be difficult to find an ideal location for a greenfield site within a specific trade area.  If there is already a competitor in the trade area with ideal real estate, it may make sense for you to acquire that competitor vs. building your own location on less ideal real estate within that same trade area.

2) Starting a new business from a solid base

Building a loyal base of sticky customers that return to your business for their needs is often challenging and can be very costly. When one is thinking about entering into a new market with a new brand or different business model, acquiring new customers can be even more challenging and more costly due to low awareness, affinity/comfort with existing solutions, and general customer apathy.  One way to try to combat these challenges is to buy an existing player in the market and transition those customers to your brand/model while at the same time hunting for new business.  Although this deal rationale can be very successful, it can also be fairly risky if the transition from the legacy brand to your brand is not done thoughtfully.  The key to this deal rationale is truly understanding the customer and ensuring a smooth, transparent transition.

Key considerations 

Despite the many benefits of expansion through acquisition, the reality is that successfully acquiring and growing a business can be risky.  Below are a few key considerations to keep in mind when thinking about the Acquisition Approach.

Don’t get caught in the “distressed asset trap”

When I worked in the M&A group for a Fortune 50 company, my boss gave me some very powerful advice: “I am not in the business of buying crappy businesses, why waste my time when there are better opportunities”. I believe that this advice is extremely relevant to franchisee’s considering buying businesses that are priced to sell.  If a business is not doing well under current management, there is typically a very compelling reason why.  A change in management is likely not going to solve the underlying business issues, and the amount of investment (financial & time) required to turnaround the business simply may not be worth it vs. your next best investment opportunity.

 Prepare for transition risk

Post-acquisition integration is by far the most challenging part of any acquisition. As a new owner, you will have to figure out how to maintain continuity of the business immediately after purchase, then how to implement your plans to improve the business. Based on my experience, there are three primary transition risks that every acquirer should focus on:

1) People

people

High quality, customer service-oriented people are the lifeblood of any small business and the reason why customers come back to transact with the business. Identifying the key employees, understanding their needs/wants, and developing a plan to mitigate flight risk for key employees is absolutely critical for any acquisition.

2) Customers

Do not assume that the customers at the target business are the exact same as the customers at your current business. There may be specific aspects about the service that they currently receive that drive their behavior.  Before making any changes to the business model of the business you acquired, I recommend spending a significant amount of time with customers understanding what they value, what they would change about the model, and begin testing concepts.  Even minor changes to the business model without fully understanding the customer can have huge negative impacts on a customer’s likelihood to continue transacting – I have seen this first hand, and it was not pretty.

3) Suppliers

Ensuring a smooth supplier handoff from current operations to your team is critical to a successful transition. Often time, the suppliers have a lot of visibility into the challenges that the business faces.  More often than not, I have seen that supplier often provide incremental value in addition to the specific products or services that they provide the business.  In summary, proactively build relationships with the existing suppliers, engage those suppliers often, and do not be afraid to lean on the suppliers for guidance or help.

 Do your homework and know why you are buying the asset

Successfully executing an expansion through acquisition strategy truly hinges on preparation. This starts with clearly defining a thesis for why you should buy a location vs. building your own location.  A few questions you may want to ask yourself are:

    • Is real estate the primary driver for acquiring?
    • Is the customer base the primary driver for acquiring?
    • What assets are you getting as part of the acquisition?
    • How will you better leverage those assets?
    • What other investment will be required to grow the business?
    • What are your other alternatives to grow your business?

As you go through the transaction process, take the time to gather as much information as possible to test the key hypothesis that you developed to justify the purchase.  Once you feel comfortable that you have confirmed your hypotheses, create a formal 30-60-90 day integration plan for the business and allocated resources for execution.  Proper preparation prevents poor performance.

Conclusion

costs

Expanding your business through acquisition can be an extremely successful strategy – it can enable you to secure prime real estate and can give you a great customer base to quickly grow. However, this approach does not come without risk: spend the time to truly understand what you are acquiring and why you are acquiring the business, then ensure that you are prepared with a well-defined, measured transition plan.

franchise specialist

Latest Articles

Why Apps Are the Future for Small Businesses

Why Apps Are the Future for Small Businesses

Portillo’s Franchise Opening Near You?

Portillo’s Franchise Opening Near You?

10th annual Women’s Business Conference and awards to be held in Cheltenham in October

10th annual Women’s Business Conference and awards to be held in Cheltenham in October

Panera Franchise Worth It For 2022? 3 Alternatives To Consider…

Panera Franchise Worth It For 2022? 3 Alternatives To Consider…

500+ Unit Franchise Giants With The Most Failed Locations

500+ Unit Franchise Giants With The Most Failed Locations

Goosehead Insurance Franchise Justifies Costs in Short Period (2022)

Goosehead Insurance Franchise Justifies Costs in Short Period (2022)

How to Find a Franchise and not Fail in the Attempt (2022)

How to Find a Franchise and not Fail in the Attempt (2022)

H&R Block Franchise Closed 700+ Franchises Over Past 3 Years (2022)

H&R Block Franchise Closed 700+ Franchises Over Past 3 Years (2022)

FranNet Franchise Analysis For 2022 (Reviews, Cost & More)

FranNet Franchise Analysis For 2022 (Reviews, Cost & More)

Woof Gang Franchise Has Amazing Returns in 2022

Woof Gang Franchise Has Amazing Returns in 2022

7 Brew Franchise – Drive-thru Coffee Concept and Short Payback Period (2022)

7 Brew Franchise – Drive-thru Coffee Concept and Short Payback Period (2022)

Who will dominate the pet franchise market in 2022?

Who will dominate the pet franchise market in 2022?

Dream Vacations Franchise Cost Recovered Insanely Fast (2022)

Dream Vacations Franchise Cost Recovered Insanely Fast (2022)

It’s Boba Time Franchise Cost Justified By Profits? (2022)

It’s Boba Time Franchise Cost Justified By Profits? (2022)

Senior Care Franchises: What is the Top in 2022?

Senior Care Franchises: What is the Top in 2022?

Applebee’s Franchise Not Suitable for Single Unit Operator (2022)

Applebee’s Franchise Not Suitable for Single Unit Operator (2022)

Regis Corporation: The Hair Salon Monopoly of the World?

Regis Corporation: The Hair Salon Monopoly of the World?

Sole Proprietorship Vs. LLC – What Is Best For Your Business In 2022?

Sole Proprietorship Vs. LLC – What Is Best For Your Business In 2022?

Goddard School Franchise Cost Worth Profit Potential? (2022)

Goddard School Franchise Cost Worth Profit Potential? (2022)

What is the best Mosquito and Pest Control Franchise in 2022?

What is the best Mosquito and Pest Control Franchise in 2022?

LLC vs Corporation – What is Best for You Business in 2022

LLC vs Corporation – What is Best for You Business in 2022

Amazon DSP & Routes For Sale Deep Dive (2022)

Amazon DSP & Routes For Sale Deep Dive (2022)

Insomnia Cookies Franchise & 3 Alternatives Available In 2022

Insomnia Cookies Franchise & 3 Alternatives Available In 2022

Biggby Coffee Franchise Cost Analysis (2022)

Biggby Coffee Franchise Cost Analysis (2022)

Can you open an In-n-Out Franchise in 2022?

Can you open an In-n-Out Franchise in 2022?

U-Haul Neighborhood Dealer Network Average Income & Benefits (2022)

U-Haul Neighborhood Dealer Network Average Income & Benefits (2022)

Jimmy John’s Franchise Cost Worth It? (2022)

Jimmy John’s Franchise Cost Worth It? (2022)

KFC Franchise Cost, Requirements, And More! (2022)

KFC Franchise Cost, Requirements, And More! (2022)

Is it easy to start a Waffle House Franchise in 2022?

Is it easy to start a Waffle House Franchise in 2022?

Autism Treatment Business Review With Success on the Spectrum

Autism Treatment Business Review With Success on the Spectrum

Elements Massage Franchise Review (2021)

Elements Massage Franchise Review (2021)

Amorino Franchise review (2021)

Amorino Franchise review (2021)

10 Questions for Franchisees

10 Questions for Franchisees

Wow Wow Hawaiian Lemonades Franchise Left Unresolved (2022)

Wow Wow Hawaiian Lemonades Franchise Left Unresolved (2022)

Birthday Pak Franchising LLC: The Worst Company Ever? 

Birthday Pak Franchising LLC: The Worst Company Ever? 

Curves Franchise Under Fire: Complaints Mount (2022)

Curves Franchise Under Fire: Complaints Mount (2022)

Dental Fix Sues Franchisee for 18 Years of Royalty Payments

Dental Fix Sues Franchisee for 18 Years of Royalty Payments

BurgerIM. The Worst Franchise Complaints: What Went Wrong?

BurgerIM. The Worst Franchise Complaints: What Went Wrong?

Amazing Explorers: More Than a Daycare Franchise

Amazing Explorers: More Than a Daycare Franchise

All County by Hon Wong: The Definitive Guide to Real Estate 2022

All County by Hon Wong: The Definitive Guide to Real Estate 2022

The Sellers’ Guide to Closing a Business Quickly: A 2022 Checklist

The Sellers’ Guide to Closing a Business Quickly: A 2022 Checklist

20 Questions with Real Property Management (2022)

20 Questions with Real Property Management (2022)

Ryan Farris, Reveals Secret To Success Throughout Pandemic

Ryan Farris, Reveals Secret To Success Throughout Pandemic

Franchise Financing and Structuring Methods for 2022

Franchise Financing and Structuring Methods for 2022

Chick-Fil-A Franchise Fee; Cost Really Just $10k? (2022)

Chick-Fil-A Franchise Fee; Cost Really Just $10k? (2022)

Domino’s Franchise Cost Low Ticket to Make Millions (2022)  | Vetted Biz

Domino’s Franchise Cost Low Ticket to Make Millions (2022) | Vetted Biz

Keyrenter Franchise: A Leading Property Manager (2022)

Keyrenter Franchise: A Leading Property Manager (2022)

WOW 1 Day Painting Franchise to be Available in 2022

WOW 1 Day Painting Franchise to be Available in 2022

Kitchen Tune Up Franchise: Home Remodeling Services

Kitchen Tune Up Franchise: Home Remodeling Services

Planet Fitness Franchise Cost Worth The Profit? (2022)

Planet Fitness Franchise Cost Worth The Profit? (2022)

Raising Cane’s Franchise Cost Pays For Itself (2022)

Raising Cane’s Franchise Cost Pays For Itself (2022)

Outback Steakhouse Franchise | Employee Retention Case Study (2022)

Outback Steakhouse Franchise | Employee Retention Case Study (2022)

Molly Maid Franchise: The Exclusive Interview You Must Read in 2022

Molly Maid Franchise: The Exclusive Interview You Must Read in 2022

How Much is a Wingstop Franchise? Wingstop Franchise Cost Detailed (2022)

How Much is a Wingstop Franchise? Wingstop Franchise Cost Detailed (2022)

Jack In The Box Franchise Cost (Average For 2022)

Jack In The Box Franchise Cost (Average For 2022)

Baskin Robbins Franchise Cost Way Too High (2022)

Baskin Robbins Franchise Cost Way Too High (2022)

Shake Shack Franchise Cost Exposed And 3 Alternatives (2022)

Shake Shack Franchise Cost Exposed And 3 Alternatives (2022)

How to Start an Ice Cream Franchise: The Dessert Industry

How to Start an Ice Cream Franchise: The Dessert Industry

Haagen-Dazs franchise: one of the most popular ice cream!

Haagen-Dazs franchise: one of the most popular ice cream!

The Cleaning Industry: Mint Condition

The Cleaning Industry: Mint Condition

SBA 7(a) Loan for Franchise And Other Financing Options

SBA 7(a) Loan for Franchise And Other Financing Options

CertaPro Painters Review For 2022

CertaPro Painters Review For 2022

Opening a Small Business in Asheville NC

Opening a Small Business in Asheville NC

Master Franchise Explained

Master Franchise Explained

Franchise vs Corporate. What’s the difference?

Franchise vs Corporate. What’s the difference?

The Two Biggest Disadvantages of Franchising

The Two Biggest Disadvantages of Franchising

Chiropractic Services For Sale | Can’t Miss Report

Chiropractic Services For Sale | Can’t Miss Report

Board and Brush – Franchise Opportunities (For 2022)

Board and Brush – Franchise Opportunities (For 2022)

The Problem with Franchise Portals

The Problem with Franchise Portals

Multi Unit and Single Operator Franchise

Multi Unit and Single Operator Franchise

What is an SBA Loan

What is an SBA Loan

Market Research and Business Opportunities

Market Research and Business Opportunities

Which Is The Best Pizza Franchise? (2022)

Which Is The Best Pizza Franchise? (2022)

Bonchon Franchise Cost and Revenue Revealed (2022)

Bonchon Franchise Cost and Revenue Revealed (2022)

Company Valuation: How to Choose a Business Valuator

Company Valuation: How to Choose a Business Valuator

Tea Franchise: Is It Worth Investing In Junbi? (2022)

Tea Franchise: Is It Worth Investing In Junbi? (2022)

Crumbl Cookies Franchise Cost Justifies High Owner Salary In 2022

Crumbl Cookies Franchise Cost Justifies High Owner Salary In 2022

Topmost criteria for franchising in the U.S.

Topmost criteria for franchising in the U.S.

The Boiling Crab Franchise: Costs, Profits, and More!

The Boiling Crab Franchise: Costs, Profits, and More!

Best Franchise Podcast Episodes (2022)

Best Franchise Podcast Episodes (2022)

Buy a Business or Franchise For Sale?

Buy a Business or Franchise For Sale?

Starbucks Franchise Cost Compared To 3 Other Coffee Franchises

Starbucks Franchise Cost Compared To 3 Other Coffee Franchises

Can you open a Chipotle Franchise? Key Takeways (2022)

Can you open a Chipotle Franchise? Key Takeways (2022)

SBA Loan for Franchise Facts

SBA Loan for Franchise Facts

Why You Need a Business Litigation Attorney on Call

Why You Need a Business Litigation Attorney on Call

IM=X Pilates Franchise Review (2021)

IM=X Pilates Franchise Review (2021)

Why You Need a Franchise Lawyer

Why You Need a Franchise Lawyer

Truth Behind Low Cost Franchises | Presented by Vetted Biz

Truth Behind Low Cost Franchises | Presented by Vetted Biz

Business Broker Franchise Review

Business Broker Franchise Review

Crepe Delicious Restaurant Franchise Review (2022)

Crepe Delicious Restaurant Franchise Review (2022)

Young Rembrandts Franchise Cost, Owners & Financials (2021)

Young Rembrandts Franchise Cost, Owners & Financials (2021)

Cherry Blow Dry Bar Franchise Review (2021)

Cherry Blow Dry Bar Franchise Review (2021)

Urban Bricks Pizza Franchise Review (2019)

Urban Bricks Pizza Franchise Review (2019)

Blo Blow Dry Bar Franchise Review (2021)

Blo Blow Dry Bar Franchise Review (2021)

Splash and Dash Franchise Review (2021)

Splash and Dash Franchise Review (2021)

Five Star Bath Solutions Franchise Review (2021)

Five Star Bath Solutions Franchise Review (2021)

Challenge Island Franchise Review (2021)

Challenge Island Franchise Review (2021)

Jon Ric International Franchise Review

Jon Ric International Franchise Review

Creamistry Franchise Review (2021)

Creamistry Franchise Review (2021)

Spris Pizza Franchise Review

Spris Pizza Franchise Review

ChillN Franchise Review (2021)

ChillN Franchise Review (2021)

AKT Franchise Review (2021)

AKT Franchise Review (2021)

Paciugo Franchise Review (2021) 

Paciugo Franchise Review (2021) 

Fitness Together Franchise Review (2021)

Fitness Together Franchise Review (2021)

The Lash Lounge Franchise Review (2021)

The Lash Lounge Franchise Review (2021)

Le Macaron Franchise Review (2021)

Le Macaron Franchise Review (2021)

Got Produce Greenhouse Franchise Review (2021) 

Got Produce Greenhouse Franchise Review (2021) 

Vitality Bowls Franchise Review (2021)

Vitality Bowls Franchise Review (2021)

The Franchise That Changes Lives Through Sports

The Franchise That Changes Lives Through Sports

Health Index Business March 2021 Report

Health Index Business March 2021 Report

Avoid buying a Gas Station or Car Wash For Your E2 Visa

Avoid buying a Gas Station or Car Wash For Your E2 Visa

Senior Care Franchise Review with Golden Heart

Senior Care Franchise Review with Golden Heart

ManCave for Men – Franchise for Sale

ManCave for Men – Franchise for Sale

Home Services Franchise: Bloomin Blinds (2021 FDD Review)

Home Services Franchise: Bloomin Blinds (2021 FDD Review)

Ice Cream Franchise Review with Chill-N Nitrogen

Ice Cream Franchise Review with Chill-N Nitrogen

Burger Franchise Review with Juicy Burger

Burger Franchise Review with Juicy Burger

Bar-B-Clean: BBQ/ Grill Cleaning Franchise Review (2021)

Bar-B-Clean: BBQ/ Grill Cleaning Franchise Review (2021)

UPS Store Franchise Cost Worth 2022 Profit Potential?

UPS Store Franchise Cost Worth 2022 Profit Potential?

Popular Business Industry Opportunities

Popular Business Industry Opportunities

Foreign Buyers look for in Business Listings

Foreign Buyers look for in Business Listings

Top 20 Most Popular Franchises of 2022

Top 20 Most Popular Franchises of 2022

5 Most Important Business Skills Every Entrepreneur Must Have

5 Most Important Business Skills Every Entrepreneur Must Have

Arby’s Franchise: Is it worth the investment? (2022)

Arby’s Franchise: Is it worth the investment? (2022)

How Much to Franchise McDonald’s? McDonald’s Franchise Cost & Profit (2022)

How Much to Franchise McDonald’s? McDonald’s Franchise Cost & Profit (2022)

JAN PRO Franchise Cost Worth Owner Salary? (2022)

JAN PRO Franchise Cost Worth Owner Salary? (2022)

3 Things to know when Searching for a Business to Buy

3 Things to know when Searching for a Business to Buy

Franchise Consulting  Targeting the Franchise Industry

Franchise Consulting Targeting the Franchise Industry

What To Look For When Buying A Business

What To Look For When Buying A Business

Selling Your Business in the Future

Selling Your Business in the Future

Buying a Hampton Inn Franchise

Buying a Hampton Inn Franchise

8 Steps to Sell Your Business for the Best Price

8 Steps to Sell Your Business for the Best Price

Ace Hardware Franchise: Is It Worth The Investment? (2022)

Ace Hardware Franchise: Is It Worth The Investment? (2022)

What to know about the SBA Paycheck Protection Program

What to know about the SBA Paycheck Protection Program

Miami businesses for sale: What to look out for

Miami businesses for sale: What to look out for

Explore Businesses for Sale in Florida

Explore Businesses for Sale in Florida

Small Business Coronavirus Recovery Options

Small Business Coronavirus Recovery Options

Changing Landscape for Retail and Food Space

Changing Landscape for Retail and Food Space

How to Understand Franchises Numbers

How to Understand Franchises Numbers

3 Salad and Go Franchise Alternatives For 2022

3 Salad and Go Franchise Alternatives For 2022

8 FRANCHISE News SOURCES You Need To Follow (2022)

8 FRANCHISE News SOURCES You Need To Follow (2022)

Your Suscription has expired!

Looks like your subscription is due. Please renew to keep using our services.

Share link

Or

Downgrade subscription

You are going to downgrade your subscription.This action will proceed the difference in cost of plans and reset subscription period after moneyback.

Vetted Member $79/month

Simple Start Free

Upgrade subscription

You are going to upgrade your subscription.This action will proceed the difference in cost of plans and reset subscription period after moneyback.

Simple Start Free

Vetted Member $79/month

Cancel subscription

You’re about to cancel your subscription. Please confirm by clicking on the “Cancel Subscription” button below.

Performing this action will delete your account.

Plan Updated

Your current subscription plan is:

Vetted Member $79/month

Support Form

Please fill out the form below with any technical issues, questions or feedback you might have.