Franchisors and resales – the need for strategic action

I still find it strange that many franchisors fail to grasp the huge benefits to be accrued by having in place a structured and pro-actively driven franchise resales process. I am not sure of the reasoning behind this rather blinkered approach – it may be financial, the fear of getting it wrong or simply not seeing value in the process – but whatever the reason there are large numbers of franchisors who are simply missing out.

All franchisees in whatever brand go through a lifecycle. From the excitement of initial acquisition and business launch through to the slightly precocious early years and finally to maturity and stability that can come with experience – often termed the ‘comfort zone’. Franchisees may need to exit at any of these stages but the main time for franchise resales to occur is at this latter stage in their life-cycle when either they wish to retire or are sitting on a golden nugget of territory which is under exploited and the franchisor would like them to retire.

Whatever the stage or reason, franchise resales occur and if left unmanaged can be stressful, troublesome and filled with hassle for all parties. Time to have a structured franchise resales process in place! Of course in this day and age the process doesn’t need to be a burden on the franchisor and their executives, it can of course be outsourced to highly competent specialists.

To my mind there are many benefits gained by having in place a fully functioning franchise resales process. The first and clear benefit is that the franchisor will have, by helping and managing a franchisees exit from their network, a seller who is happy with their time as a franchisee and is grateful to their franchisor for providing them with a full ‘cradle to grave’ support process. This undoubtedly will mean they will speak well of the franchisor once they have gone and not be bad-mouthing them to all and sundry because they were cast adrift during the final stage of their time within the franchise. No brand needs a poor reputation.

The second benefit is that the purchaser, the new franchisee, has a clear and smooth path to entry. Because the franchisor was there to help them and to control the way the business was sold to them they know what they are getting into and are not overstretched financially or operationally. This means the new franchisee hits the ground running and is therefore ready and able to grow the business from its current position as any issues, if there were any, have been ironed out before they take over. Not having any ‘got to fix it’ issues early on gives them confidence to grow which of course means additional fee payments or product sales to the franchisor – a true win-win situation.

This also gives a great PR opportunity for the franchisor which surely is yet another added benefit.

A further benefit is that of maintaining brand presence. If franchisors do not support franchisees during this last phase of their life-cycle or at any stage when they have decided to sell up, the risk is they will shut their doors and simply walk. The result of this action is that the franchisor then has to advertise and re-recruit a franchisee for the territory or location which means additional cost for the franchisor, a vacant location for a period and a new franchisee who has to start from scratch. Far better, surely, to have them take over an established operation and save that cost and hassle for the franchisor.

These are the key items which I believe should be within the armoury of every franchisor no matter how large or small, how established or fledgling. It is a subject I have discussed often over the years with bfa members, at conference, forums and at bfa organised Specialist Seminars

  • Key items for a structured resales system
  • Guide to selling for vendors contained in the Ops Manual
  • Business planning and exit planning process
  • Dedicated management of resales
  • Valuation guidance
  • Guidance for purchasers
  • Template prospectus of sale document
  • Managed negotiations
  • Constant and consistent communications
  • Dedicated solicitor to oversee the transaction
  • Pro-forma Sale & Purchase Agreement (tripartite to include the franchisor)

This list could be expanded to provide finance acquisition advice but I believe the above will satisfy the requirements of most franchisors.
Do I hear a cry of “what about the cost of all this?” Well the costs are not borne by the franchisor. The cost of selling a business lies squarely with the seller and the cost of buying a business lies squarely with the buyer. As indicated previously this service can also be provided very effectively by outsourcing it to a specialist franchise broker at no cost to a franchisor. A well run franchise resales programme will cover its costs easily and when a long view is adopted the benefits accrued through having a new motivated and growing franchisee in place will pay countless dividends to the strategically savvy franchisor.

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