4 Lessons in Franchise Resales
If signing a franchise agreement is akin to marriage, as the frequent analogy goes, does that make a franchise resale the divorce? That’s not the right attitude for franchisors, who should instead understand that resales are a natural part of the life cycle of a brand, and addressing them early will make for a smoother transition for all involved.
Plan for the exit
Plenty of reasons can trigger a franchise resale—think retirement, personal reasons or discovering the concept just isn’t the right fit—so having a process to help those owners exit benefits franchisors and franchisees alike. At Moran Family of Brands, franchisors of Mr. Transmission, Milex and other auto brands, President Pete Baldine noted their simple status as a mature company means transfers are becoming more common.
“Thirty-three percent of our franchisees have been in the system for 20 years or more, and 16 percent have been in for 30 years or more, so it’s important that we can help them find that equity when they’re ready to exit the business,” said Baldine.
Having a formalized program in place is necessary to manage that franchisee turnover. At Moran, for example, it takes the form of a referral program within the system, including an in-house resale newsletter sent to existing franchisees, plus a monthly newsletter sent to brokers who specialize in resales.
Watch for warning signs
While a typical franchise agreement is for 10 years, the typical franchisee stays in the system for about seven years. Franchisors should anticipate, as much as 18 months in advance of the resigning of a franchise agreement, that a franchisee could exit and start the conversation to learn their intentions. Franchisors must also be mindful of warning signs, such as disengagement from communication or poor performance, that indicate a franchisee may not renew their agreement.
Offer succession planning
As part of the broader franchise resale strategy, franchisors should coach franchisees to think about their eventual exit and what they can do to prepare. “We’ll talk to them about what it takes to plan. You don’t just put this thing on the market. You’ve gotta prepare,” said Baldine. That includes organizing tax returns, P&L statements and perhaps use of outside valuation specialists and CPAs to provide a third-party analysis on the value of the business.
Resale buyers are not the ‘stepchildren’
At sandwich franchise Which Wich, President Cherry Hearn said the brand was caught off guard when it began to see an increase in transfers. “But we learned with the passage of time it’s just part of being franchisors,” she said. Those transactions, and the new franchisees that come along with them, “are not the stepchildren of the brand” but an opportunity to inject new blood into the system thanks to enthusiastic new owners.
Those resale buyers should also receive the same level of training and opening support as other new franchisees. “Don’t cut short what you do for a new franchisee versus one that’s coming in via a resale,” noted Baldine. Ensure there’s a plan in place, including marketing and PR, for things like a grand reopening to alert the community to the new ownership.
• Read more: How to do franchise resales right