The Secret To Reselling a Franchise Location

As a franchise system grows, the franchisor needs to prepare for the possibility — or inevitability — of resales. Whether an operator who has been in the system for decades is ready to retire, or a new franchisee decides to buy used, brands need to prepare to oversee changes in ownership. 

Here are some of the secrets to nailing the resale process and ensuring that existing locations continue to run successfully when transferring ownership to a new franchisee.

Finding The Right Franchise Candidate

Valernie McCartney, vice president of franchise sales and development for The Broken Yolk Cafe, noted that the first step in the resale process is identifying the right candidate. Whether an existing franchisee is deciding to sell on their own or the franchisor is making the decision, a qualified candidate needs to be lined up to take the reins. 

“Before selling a location, it is important to really know your target audience,” said McCartney. “There are two groups of prospective franchisees — multi-unit operators, who are only attracted to brands that have a strong Item 19, and first-time franchisees who want to open up exactly one location. The first-time, single-unit franchisees are the people who want to be their own boss. They are hard-working, but they need a lot more hand-holding. They are risking a big percentage of their net worth and they’ve never taken out a big loan, so they need more support. The franchisor needs to understand who they are going to attract so they can be prepared to support those specific franchisee prospects.”

If the franchisor only wants experienced multi-unit operators, McCartney notes that franchise brokers can be a powerful tool in the resale process. “There are a lot of great brokers out there who are so well connected that if a multi-unit franchisee comes to me and says they want to sell their location, I know that connecting them with the broker is the best way to find a qualified prospect in the area,” she said. 

McCartney continued, “If a brand that sells to a lot of first-time franchise operators is looking for a transfer of ownership, that is a completely different story. Most franchisors are always going to go to the geographically adjacent, strong franchisees first. They’ll say, ‘Bob may be looking to get out and you are in the next town over — do you want to buy his store?’ If that person isn’t interested, you go back to your traditional prospecting. For example, well-targeted Facebook ads are a great fit for finding prospects in a specific area where a location might be selling.”

Being Prepared for a Franchise Resale

Franchise resales can happen much faster than opening a new location and franchisors need to be prepared for when the day inevitably comes. For one, keeping detailed profit and loss statements, balance sheets, market demographic information and staff records is key in helping new owners transition easily.

This is one of the reasons that Kenneth Helmuth, a multi-unit Right at Home* franchisee based in North Carolina, decided to purchase an existing location that had been in operation for five years as his first franchise. “If all of the processes are in place, purchasing a resale can provide a ton of advantages,” he said. “In our case, Right at Home already had a reasonable presence in the Durham area, including established clients, staff and more. Since I was able to really analyze their numbers, I knew I had a great opportunity to really build on what they had already done.” 

In addition, franchisors should make sure that the management structure is clear and defined. This will not only help a new owner or operator come in and take over the day-to-day operations easily, but it could also help streamline the process if an existing store manager is looking to climb the ranks and take over as franchise owner.

Being Open-Minded, But Smart

Ideally, a resale will happen because an owner has decided to retire or a mutual decision has been reached by all parties involved, but oftentimes, they are caused by unexpected circumstances like economic hardship or a failure to follow the franchise model. That is why franchisors need to stay open-minded and flexible when it comes to the resale process — things can happen fast and prospective franchisees need to feel supported and positive around the idea of buying an existing store.

Still, while being susceptible to new ideas or supportive of younger owners coming into a mature system is important, McCartney emphasizes that franchisors still need to be smart about who they let take over ownership. 

Overall, the secret to a successful franchise resale is to find the right candidate and provide them with the infrastructure they need to seamlessly transition into ownership.