21 Aug The Secret to a Successful Franchise Resale Strategy
Let’s face it: no one wants to discuss a franchise resale strategy at the start of a new partnership.
Franchisees are riding the wave of excitement (with a tinge of fear) about their new investment.
And franchisors are hesitant to give their new owners any reason to think the business might fail (even though franchisors only terminate 5-6 percent of franchise contracts each year).
But here’s the truth:
Discussing a franchise resale strategy should be a prerequisite for any new franchisee signing on to your brand.
Having an exit strategy in place for new franchisees ends up being mutually beneficial to both the owners and the franchisors.
Why All Franchisors Need a Transparent Franchise Resale Strategy
Putting a plan in place for how owners can sell their franchise is a no-brainer. Of course no franchisor wants to be in a situation where a franchisee is backing out and there’s no contingency plan in place.
Which is why it makes sense that almost all franchises have a playbook in place for these situations.
But few actually share that playbook with their franchisees.
And that lack of transparency is what needs to be fixed.
Because at the end of the day, a mutually agreed upon franchise resale strategy gives both parties peace of mind.
For franchisees, they know that their commitment to the business isn’t life or death. That if things go poorly, they have a way to get out and try to recoup some of their losses.
But, even more importantly, a transparent franchise resale strategy shows owners that when things go well, there’s a plan in place for them to cash out and walk off into the sunset (preferably one that looks like this):
“…The sale is where the fruits of your labor are realized. The years you spend as the business owner aren’t just spent operating the business, they are spent growing the business, and hopefully growing it into an asset ready to be sold for a nice profit when the time is right. That time will be different for everyone, but it will come.”
Helping franchisees see that light at the end of the tunnel can actually be an added selling point for prospective owners.
But, of course, franchisors benefit from a clear game plan, too:
On the franchisor side, a transparent exit strategy ensures your new franchisees know your expectations. That when they decide to leave — for any reason — there are rules and procedures for how to make it happen.
Putting that policy front-and-center in the early stages of signing on a new franchisee underscores the value your organization places on brand reputation and selectiveness about ownership.
And that translates to a bigger sense of pride for your franchisees and far fewer problems down the road.
So what exactly makes a good franchise resale strategy?
Let’s dive in:
The Two Big Secrets to a Successful Franchise Resale Strategy
#1. Make Sure There’s a Sales Clause in Your Franchise Agreement
This one may seem fairly obvious, but it’s arguably the most important step:
Without a clause in the initial franchise agreement that clearly gives franchisees the right to sell their business, any potential resales down the road could get messy.
Having your owners sign-off on the franchise exit strategy at the start of the partnership sets you up to be in control when the time comes that your franchisee looks to make a move away from the business.
Within that clause, franchisors should outline:
- The exact process franchise owners must follow to sell
- Franchise stipulations for sale (for example: number of years under current ownership)
- Buyer qualifications
- Fees and charges associated with the selling of a franchise
Those fees may include a commission if the franchisor facilitates an introduction to the buyer, a transfer fee for selling the franchise, and sign-up fees charged to the new owner for joining the organization.
But to be clear: it’s not enough to just add a sales clause into your franchise agreement and then leave it be.
#2. Provide Franchisees with Resources Needed to Make the Sale
Some franchisors may have a clear policy for how franchisees can sell their business, but no support in place to help make it happen.
They may think: “Just because I allow it, doesn’t mean I need to support it.”
But that thought process is inherently wrong in the franchise space.
Franchisors actually do have an obligation to guide their owners through the selling process. It’s weaved into the very fabric of how franchisee/franchisor relationships work.
As the team over at TapSnap highlights, franchisors have a responsibility to provide ongoing support and tools to their owners:
“The franchisor is responsible for providing adequate training on a continual basis to franchisees. Franchisors are also responsible for providing ongoing support, whether it’s by listening and responding to queries, or providing the necessary tools and resources. The franchisor also plays a troubleshooting role for any problems that may arise, such as technical difficulties with a product.”
The resources franchisors provide may include:
- A Resale Guidebook. Franchisees can turn to a procedural for common tasks like inventory control and payroll. And they should have the same sort of guide for selling their business, too. Outline in clear terms the steps in starting the selling process and make sure all franchisees know how to access the information if needed.
- Sales materials. Give franchisees up-to-date information about the overall franchise organization and all of the tools they need to facilitate a sales including information to provide to prospective buyers, contracts, and even third-party valuations.
- Leads on potential buyers. Often it’s in a franchisor’s best interest to find a buyer for the business. Not only can the franchisor thoroughly vet the candidate, but they can also earn a commission fee for bringing the buyer to the table.
All in all, it’s the franchisor’s responsibility to make sure the owner has everything they need to meet your requirements for selling their franchise.
A good franchise resale strategy puts both parties at ease about the future of a new owner’s business.
By giving franchisees the right to sell and the resources to make it happen, owners can feel comfortable knowing there’s an exit strategy.
And at the same time, franchisors can feel confident knowing they’re in control of the terms and conditions.
It’s a plan that works for both sides and ensures both franchisors and franchisees come out on top.