Franchises: Building vs Buying ... Am I crazy?

searcher profile

February 16, 2025

by a searcher from Messiah College in Spring Lake, NJ 07762, USA

I would like to hear from people who have BOTH bought and built franchises in new territories.

I've been a self-funded searcher for about 6 months. I haven't been interested in franchises until I recently found a home services brand that started in 2020, and seems to be rapidly expanding. Currently has 30 operating territories, with another 40 coming online in the next 6 months.

MY QUESTION: is buying into new territories more work than its worth? My thought is to buy three territories and build over the next 5 years. Would love to hear from experienced people what their warnings and cautions are about this track. Per Jim Sharpe's blog this is an extreme minority of ETA folks that take this track, but want to learn from those that have done it!

Thanks!

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commentor profile
Reply by a searcher
from University of Pennsylvania in Palo Alto, CA, USA
I'm in process of a supplemental education franchise rollup. I just closed my first acquisition and am planning to launch three de novo territories. There are pros and cons with each -- with acquisitions you get immediate revenue and profitability, but it also comes with legacy issues and you are likely paying for that revenue in debt. If you know what you're doing, there's an opportunity to take out smaller debt on a new build and grow it to the same revenues. So in ~1 year you could be at similar revenues but much smaller debt service. Interested in others' thoughts on this as well.
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Reply by a lender
from University of North Carolina at Wilmington in Argyle, WI 53504, USA
Those are two extremely different scenarios, both cost wise and operationally. There are pros and cons to each approach. In my opinion, the most important considerations are:

1) Historical strength and trends of the subject business (debt service coverage), along with the strength of the brand
2) Continuity of management for the respective territories and how much is reliant upon the seller currently
3) Ability and financial wherewithal of the buyer(s) to execute on a large purchase

Happy to discuss if you'd like! redacted / ###-###-####
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