Franchise Resales vs. New Locations
Buying an existing franchise unit or opening a new one: transfer approval and fees, real P&Ls, ramp risk, valuation basics, and how diligence differs.
Two different transactions wearing the same brand
There are two ways into most franchise systems. You can sign a new franchise agreement and build a unit from nothing, or you can buy an existing unit from the franchisee who owns it. The brand is the same, the operating manual is the same, and often the salesperson is the same. Almost nothing else is.
A new unit is a construction and launch project with an unknown revenue outcome. A resale is the purchase of an operating business with a known revenue history, bought from a motivated seller, subject to a third party’s approval. The risks sit in different places, the diligence is different work, and the price is arrived at in an entirely different way.
Where the FDD tells you resales exist
Item 20 of a Franchise Disclosure Document contains the outlet tables, and one of them reports transfers — outlets that changed hands between franchisees during each of the last three fiscal years. That count is the closest thing to a published measure of a brand’s resale market, and it is worth reading against openings and closures rather than on its own.
The pattern varies enormously. Servpro discloses transfers of 106, 137 and 139 across 2023 to 2025 while new openings fell from 98 to 94 to 79 (2026 FDD, Item 20), so by 2025 the resale market moved nearly twice as many outlets as new development did in a system that grew every year. Two Maids discloses transfers rising from 6 to 10 to 13 over the same period in a system that grew from 99 to 184 franchised outlets (2026 FDD, Item 20). Merry Maids discloses transfers falling from 66 to 35 to 12 while franchised outlets fell from 908 to 684 (2026 FDD, Item 20). Sport Clips discloses 98, 123 and 51 (2026 FDD, Item 20).
Read those in context. Rising transfers in a growing system usually indicate a functioning secondary market: units are worth buying, and an owner who wants out can find an exit. Falling transfers in a contracting system are harder — owners may be leaving through closure rather than sale, because nobody wants to buy. A brand with almost no transfers is one where your own exit may be difficult, and that is a cost of ownership even if you never plan to sell.
What Item 17 does to a resale
Item 17 is the table of renewal, termination, transfer and dispute-resolution provisions. Its transfer rows govern the deal you are trying to do, and they are not neutral.
The franchisor must approve the buyer. Every one of the four documents cited here requires it. Approval typically turns on the buyer meeting the franchisor’s then-current qualification criteria, the seller being current on all amounts owed, completion of training at the buyer’s cost, and a general release signed by the seller.
The franchisor usually holds a right of first refusal. It can step into the deal you negotiated on the same terms. Merry Maids discloses a 45-day right of first refusal that renews on material changes to the offer (2026 FDD, Item 17). This means the work you do structuring a purchase can be handed to the franchisor at your price.
Transfer fees are real money, and vary widely. Servpro discloses a transfer fee of up to $35,000, plus a resale referral fee of up to 10% of the gross sales price — including goodwill, equipment and licence — if the franchisor or an affiliate found or referred the buyer, plus purchase of up to three years of insurance tail coverage (2026 FDD, Item 17). Two Maids discloses a transfer fee of the greater of $5,000 per territory or 6% of the sale price up to $50,000 when selling to a new franchisee, and a Transfer Lead Referral Fee currently $15,000 if the buyer came from the franchisor’s sales database (2026 FDD, Item 17). Sport Clips discloses $5,000 for the first store plus $1,000 per additional store in the same transaction, reduced to $2,500 where the buyer is an existing franchisee (2026 FDD, Item 6). Establish early who pays these and whether the referral fee is triggered by how you first made contact.
You sign the current contract, not the seller’s. This is the single most under-appreciated fact about resales. Buyers routinely assume they are stepping into the seller’s deal. Typically they are signing the franchisor’s then-current form of franchise agreement, which the FDDs state may contain terms materially different from the one being replaced. The royalty rate, technology fee, advertising obligation, territory definition, term length and non-compete you will live under are the current ones. Ask for the actual agreement you will sign and compare it line by line with the seller’s.
Refurbishment is often a condition of approval. Sport Clips requires the buyer to renovate the premises to then-current specifications ten days before the transfer (2026 FDD, Item 17). Merry Maids requires the buyer to refurbish or replace signage, vehicle wraps, uniforms, equipment, vehicles and offices (2026 FDD, Item 17). Price that work into the purchase, because it is capital you spend on day one on top of the purchase price.
Check what term is left. Merry Maids, Servpro and Sport Clips all disclose five-year franchise terms; Two Maids discloses ten years (2026 FDDs, Item 17). Whether a resale resets the clock or you inherit the remainder changes the value materially, and renewal conditions — remodels, releases, training, current-form agreements — arrive with it.
The genuine advantage of a resale: you can see the numbers
A new-unit buyer works from an Item 19 that may not exist at all. Servpro’s 2026 FDD makes no financial performance representation, so the document supplies no revenue benchmark whatsoever. Even where Item 19 exists it describes a population, not your unit, and the population is usually curated: Two Maids excludes the 58 locations open less than a year (2026 FDD, Item 19), Sport Clips reports only stores open more than two years (2026 FDD, Item 19), and Merry Maids excludes the 103 outlets that ceased operating during the year, so its tables describe survivors (2026 FDD, Item 19).
A resale buyer gets something no Item 19 provides: the actual profit-and-loss statements, tax returns, payroll records, point-of-sale exports and franchisor royalty reports for a specific unit in a specific location with a specific customer base. Use all of them, and reconcile them to each other. The royalty reports the seller filed with the franchisor are a particularly good cross-check, because understating them has consequences.
Then work on the earnings themselves. The seller will present add-backs — expenses claimed to be personal or non-recurring, added back to reported profit to show what a new owner would earn. Some are legitimate; many are not. Test each one. Ask specifically whether the seller was working in the business, because if they were and you will not be, a manager’s fully loaded cost has to come out of the earnings figure before you value anything. Look for deferred maintenance, an under-market lease about to reset, customer or referral-source concentration, and staff who may leave with the owner.
Valuation, in general terms
Small businesses like these are usually priced as a multiple of an earnings figure. Two are common. SDE, seller’s discretionary earnings, is operating profit plus the owner’s compensation and discretionary expenses added back — the total return to a single working owner, used for owner-operated businesses. EBITDA — earnings before interest, taxes, depreciation and amortisation — is used where the business already carries a full management team, so no owner labour needs adding back.
The multiple itself depends on things a spreadsheet cannot settle: revenue durability, whether earnings are recurring or job-by-job, staff depth, lease security, remaining franchise term, brand trajectory, and how transferable the customer relationships are. Multiples quoted by brokers are marketing positions, not appraisals. Two disciplines protect you more than arguing about the multiple. First, make sure both sides are using the same earnings definition — an SDE multiple applied to an EBITDA figure, or the reverse, produces a badly wrong price. Second, sanity-check the price against what a new unit costs: there is little sense paying far more than the Item 7 total investment for a unit performing at system-median levels, unless the resale removes a genuinely material amount of risk. Engage an accountant and a valuation professional.
The genuine advantage of a new unit: you choose everything
You pick the site, the build, the staff and the opening date. You inherit no bad reviews, no disgruntled employees and no under-invested equipment. You may also get a territory the resale market cannot offer.
What you take on is ramp — the period between opening and stabilised sales, during which fixed costs run in full and revenue does not. The FDDs are thin on this. All four brands cited here budget only three months of additional funds in Item 7, and the Two Maids estimate assumes the owner takes no salary or draw and hires no manager during that period, while the Servpro estimate excludes employee wages and any owner’s draw. Three months of allowance is rarely three months of ramp. One usable disclosed data point: Two Maids reports that territories open one to two years averaged $302,267 of gross revenue, against mature quintile averages running from $229,897 to $1,085,621 (2026 FDD, Item 19).
Site selection and build cost carry their own variance. Sport Clips discloses leasehold improvements of $108,000 to $290,000 within a total range of $236,800 to $580,500, and a median cost of $399,757 to open one store in the prior calendar year (2026 FDD, Item 7). A range that wide means the outcome depends on your specific site.
How the diligence differs
For a new unit, the work is forward-looking: the FDD in full, Item 7 line by line against real local quotes, the lease and landlord work letter, a build timeline with contingency, a working-capital plan that survives a slow ramp, and calls to franchisees who opened in the last 24 months about what their first year actually looked like.
For a resale, the work is forensic and adds a second counterparty: three years of financial statements and tax returns reconciled to royalty reports, a quality-of-earnings review, the lease and its assignment terms and landlord consent, employment and non-compete arrangements, equipment condition, licences and permits, liens, and the franchisor’s approval and refurbishment requirements. Establish why the seller is selling, and ask the same question of the franchisor.
In both cases, call former franchisees from the Item 20 list, bearing in mind that some franchisors disclose confidentiality provisions that may limit what a former owner can discuss.
This guide is informational only. It is not legal, financial, tax or accounting advice, and nothing here is a recommendation to buy any franchise or any specific business. Review the current FDD and consult qualified professionals before investing.
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This guide is educational and general. It is not legal, financial, tax or investment advice. Franchise disclosure rules and lender terms change; verify current requirements with qualified professionals.