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Why franchise resales need to be a focus for franchisors

A necessary function of a healthy franchise brand's national growth is the transfer of ownership of both mature and well managed locations and struggling locations that need new leadership. Either scenario begs for a simple and deliberate process to assist the exit of old and the entry of new motivated franchisees. With a national average transfer rate for franchise companies with more than 50 locations at 11%....this is not a reality that can be ignored.

A necessary function of a healthy franchise brand's national growth is the transfer of ownership of both mature and well managed locations and struggling locations that need new leadership. Either scenario begs for a simple and deliberate process to assist the exit of old and the entry of new motivated franchisees. With a national average transfer rate for franchise companies with more than 50 locations at 11%....this is not a reality that can be ignored. If addressed properly and with a positive approach to bringing in new owners to keep the brand ever improving  and healthy…the resales becomes just another function of a growing franchised brand’s inner workings

What works and what doesn’t?
Dedicated person

If there are not “enough” transfers to warrant full time sales person…appoint one of your reps to manage the transfers along with responsibility for a smaller quota of new sales.
Without a dedicated go-to person on staff…transfers get overlooked and ignored by sales staff.  The sales team is  then only focused on new and not interested in working on what many consider a more complicated sale

Incentivize your Resales

Make the resales as important as the new sales in your overall franchising strategy.
Make success fees on resales as significant as those on new sales.
Without proper incentive, a commission driven salesperson will not be motivated to touch the resales.  Shockingly, most franchisors offer a small part of the transfer fee…usually much less than a regular commission on a new franchise sale to their sales reps.  This is counter intuitive to getting the job done.

Process and Mechanism in place

Start with a list of “to-do’s” that each franchisee needs to accomplish prior to selling. It can be as simple as a check list of documents to have in hand for due diligence for buyers and/ or valuation purposes. It should also include recognition and notation of any upgrades or improvements that need to be addressed prior to sale or as a requirement of the new buyer.

Telling the franchisee to “find a buyer” and then present them for approval after the fact is a recipe for disaster. The franchisor needs to give their zee’s, especially those that have never sold a business, a road map.

Have a ready list of truly valuable resources

If you don’t have a program in place, start with a useful and relevant list of resources like websites for advertising, local brokers, valuation services. This is a simple step and at least shows your zees that you have thought about the unavoidable: the fact that franchisees will eventually exit your system.

Developing and maintaining a “resales mindset”

  • Every Franchisee wants to eventually sell for a profit
  • Put a plan in place including “end game” goals for new franchisees
  • Educate your staff of importance of happy sellers in the system.

All of these points add to positive validation in the long run.  An overall understanding and appreciation by the franchisor that their franchisees are not signing up for life…but for a business experience that will deliver a long term profit and perhaps solid retirement….This is the message the franchisor should be sending.

Beware of Legacy Issues

  • Process and information needs to be updated and focused on what is best for resales
  • Areas to look at: Valuing the business and buyer qualification

Some franchisors still use “multiples or formulas” that they used 7-10 years ago when talking about what franchisees sold their business for…these numbers are likely not relevant in today’s market.   Get informed about what your current resales are selling for in the real world in terms of multiples etc.  This way you have hard facts about these transactions, and you can avoid setting up false expectations.

Selling a “TURN AROUND”
This is an unavoidable reality in today’s marketplace. Many franchisees didn’t survive the economic downturn. They will be selling and likely at a loss.  This is something you need to face head on. Deal with the upset franchisees that are “selling at a loss”.  Assist them and move them out…bringing in motivated franchisees that have the advantage of buying at a deep discount.

Since these opportunities require a different kind of a buyer they require a different type of marketing.  The message in advertising these opportunities has to be all about the turn-around and the upside for the incoming franchisees.  Be sure your sellers are aware and include marketing companies that know how to do this effectively in your list of resources.

Recommendations

  • Commitment to make and support a marketplace for your resales
  • List of resources
  • Dedicated person
  • Cultivate Buyers with unique marketing messages

As the most recognizable buy side/sell side service provider in franchising today FR assists mature brands in creating productive exit strategies for franchised and corporate owned locations and regions.

We can provide a Market Optimization Analysis which includes an in-depth assessment of the development opportunity in the territories surrounding the units to be sold, and a financial/operational assessment of the packages proposed for sale.

With a sophisticated on line marketplace and a highly trained and motivated team, FR makes the buy/sell process efficient, effective and user friendly.

By  Nancy Estep-Critchett

 

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