If you're thinking of purchasing a new franchise, there is a different option you may want to consider.

Each year, there are more than 7 million independent and franchised businesses listed for sale in the United States. Statistics indicate that, on average, a typical business changes ownership every four years. Franchised businesses are a part of this universe, and studies undertaken by the business brokerage industry report that franchised businesses follow the same pattern.

Known as a franchise "resale", the purchase of an existing franchise business can offer distinct advantages over a start-up franchise operation. Purchasing a franchise resale can result in a number of significant benefits to the buyer:

Finding franchise resales can present some challenges. Since franchisors have a right of first refusal for the sale of an existing franchise, the franchisor will be notified when a franchisee intends to sell.

If you're interested in a specific franchise program, contact the franchise department to indicate your interest in acquiring an existing franchise. Since most franchisors avoid operating company-owned locations, many franchisors prefer to have a database of potential buyers.

If you have an interest in a specific area or territory, you could speak with the current franchisee and indicate your interest in buying a franchise. If you're uncomfortable asking the franchisee directly about selling his or her business, you could take an indirect approach, or even use a third party.

Look for business listings in local newspapers. Individual owners and business brokers will often list a business in the business opportunity section of their local newspaper.

Visit business websites such as www.bizbuysell.com, which is the largest Internet site listing business for sale. There are a number of other sites that list franchise businesses for resale.

Contact local business brokers and/or visit their websites. There are a number of business brokers that list franchise businesses whose owners want to resell them. Franchise brokers who represent franchisors may also have franchise resale listings.

The seller of an existing franchise is obligated to pay the business broker a commission on the transaction. The buyer generally has to pay the transfer fee to the Franchisor, which may be buried in the purchase price.

The selling price is usually an important issue in any franchise resale. Business brokerage expert Tom West, owner of the Business Brokerage Press, has found that the larger franchise businesses command a selling price that is approximately 10-20% higher than comparable independent businesses. Smaller or newer franchise systems may have a problem with franchise resales, which can preclude franchisees from obtaining a reasonable price for their business.

The method commonly used by business brokers to place a value on a small business is the discretionary earnings or discretionary cash method. This method relies on recasting the profit and loss statement, so that the entire seller's discretionary cash ("SDE") is exposed.

This includes depreciation, owner's salary, and all non-recurring and non-operating expenses. Other expenses are considered to be personal or not actually necessary to the business.

The total of these items is then added to any net profit shown by the business. Obviously, a net loss figure would be subtracted from the total. The resulting figure is the cash that is available to the business owner to be used at his or her discretion.

The term "Discretionary Earnings" has been defined by the International Business Brokers Association (IBBA) as a substitute for terms such as Owner's Discretionary Cash and Owner's Cash Flow. The IBBA definition for discretionary earnings is as follows:

Once the actual owner's discretionary cash has been identified, a multiple can be applied to that number to arrive at a valuation. Most small businesses sell for 2 to 2.5 times this number.

In the case of a franchised business, some valuation models use a multiple or a percent of annual sales. It's important to gather information regarding market values for comparable businesses.

Once you've identified a franchise business for sale, established a purchase price and met the franchisors qualifications, the next step in the process is to conduct your due diligence.

In addition to the typical due diligence involved in the purchase of any business, purchasing an existing franchise presents other considerations. Unlike a brand new franchise, an existing operation has obligations and commitments including leases, vendor accounts and franchise obligations. It's important that you utilize your attorney and accountant to assist in the entire due diligence process.

Following are some important items to include on your checklist:

Acquiring an existing franchise can provide a number of benefits compared to a start-up operation. If the purchase price and territory meet your needs and you exercise proper due diligence, you could be off to a fast start with the potential for faster profits.p>