Franchise Restaurant Resales: Timing Your Resale Program for Maximum Success

In the competitive franchise model, a well-structured and strategically timed restaurant resale program is key to maintaining overall growth for your brand. Turnover in the restaurant model is well documented, with some estimating that as more than 50% of all restaurants fail to make it to the five-year mark. While that metric is lower for franchise than independent restaurants, it still results in significant churn.

Restaurant franchise resales are part of the evolution of the brand and should be treated as an opportunity to net higher growth numbers. They offer a unique opportunity for both franchisors and franchisees to ensure continuity, foster new leadership, and optimize financial outcomes.

However, the success of these transitions hinges on a clear vision, robust support systems, and meticulous planning. These are the elements of an effective restaurant franchise resale program along with the best times to develop and implement strategies that maximize the outcome for all stakeholders.

➡️Clear Vision for Restaurant Franchise Resales

Establishing a clear vision for restaurant franchise resales is the cornerstone of a successful program. Too often, the development team and C-suite see resales as an operational failure rather than an opportunity to expand. Setting the vision that these are prospects to upgrade operators, ensuring that doors stay open and increasing the overall size of the franchise system starts at the top.

The vision must be communicated effectively and embraced by both the development team as well as the C-suite and sometimes requires a change in mindset. Everyone involved must understand the goals and processes associated with resales, promoting alignment and cohesive action across all levels of the organization. When the resale vision is shared and supported, it becomes easier to navigate the complexities of transitioning franchise ownership. Clear communication fosters a unified approach, enabling teams to address challenges proactively, streamline operations, and enhance the overall brand reputation and the value of the units.

Identifying triggers for restaurant franchise resales is a critical to maintaining a proactive and effective franchise restaurant resale program. Expiring franchise agreements, non-renewals, legal issues, operational challenges, or a cash flow crisis are all triggers for units to transfer. Other triggers can include death, divorce, partnership issues, or a sudden health issue.

While not every situation can be anticipated, smart franchisors develop programs to monitor and address these triggers to anticipate potential resale opportunities and act quickly to manage them. Implementing systems to identify these signals allows for timely interventions, ensuring that franchise units do not go dark before a firm like We Sell Restaurants can identify a resale candidate, get them through the approval process with the brand and meet the requirements for training before transfer. This proactive approach helps in preserving the value of the franchise, maintaining operational standards, and ultimately facilitating smoother transitions for new owners.

Succession planning is a key part of a fully developed restaurant franchise resale strategy, ensuring long-term stability and continuity within the brand. Franchisors can be proactive by encouraging annual discussions around succession planning with the field team. Conversations guided by the operations team and documented for each unit allows the brand to stay on top of stores that are at risk.

By fostering a culture of readiness, franchises can minimize disruptions when transitions occur and maintain operational consistency. This data can then be used in partnership with firms like We Sell Restaurants that partner with successful brands on these strategies. With the continuing wave of the “Silver Tsunami” of retirees, or baby boomers hitting retirement age, it is incumbent upon brands to provide a resource to assist in this process that allows franchisees to maximize their return on exiting the brand. This also increases the overall value of each unit when turnovers result in successful sales. This proactive approach ensures that franchises are always ready to handle resales efficiently and effectively, thereby safeguarding the franchise's overall health and reputation.

Read More Here: Strategic Restaurant Ownership: Why Your Business Plan Needs an Exit Strategy

Having strong restaurant broker resource is critical to managing franchise resales effectively. Establishing either a formalized restaurant broker program or a robust informal network ensures that resales are handled with the necessary expertise and efficiency. Traditional franchise brokers are not a resource for the more complex transaction details associated with resales and typically do not handle them. Certified Restaurant Brokers have extensive training and expertise in the franchise restaurant resale market.

A firm like We Sell Restaurants plays a critical role in connecting sellers with qualified buyers, negotiating terms, and facilitating smooth transactions. Equally important is ensuring that all legal aspects of the resale process are meticulously managed. That’s why a relationship with a national firm is critical. Many states require a real estate license to handle resales and brands should be wary of small teams that purport to handle resales but do not have proper licensing before making any type of formal introduction.

All agreements between buyers and sellers should be subject to franchise approval, including transfers between existing franchisees. Those already operating the brand must be reviewed to ensure they have the capital and bandwidth to expand. Ensuring that your legal team reviews and approves all sales agreements and related forms helps mitigate risks and protects the interests of both the franchisor and franchisee. By combining strong broker relationships with comprehensive legal oversight, franchises can streamline the resale process, minimize complications, and achieve successful outcomes.

Marketing strategies play a crucial role in the success of restaurant franchise resales. Restaurant brokers like We Sell Restaurants have the expertise and customer base to market the available units. Developing comprehensive marketing plans to attract resale candidates is very different than the customer journey of someone seeking a new franchise, another reason this is best outsourced.

Working in partnership with your Restaurant Broker, franchises can participate in a distinct and well-thought-out marketing plan tailored specifically for your brand’s franchise restaurant resales can significantly enhance visibility and interest in available units. This can extend to best marketing practices once the unit transfers including a grand re-opening plan to rejuvenate the business and draw attention to the new ownership. This dual approach not only ensures that resale opportunities are actively promoted but also helps in reinvigorating the brand presence in the market. By leveraging targeted marketing efforts, franchises can maximize the appeal of their resale units, ensuring a smooth transition and continued success under new ownership.

Setting the asking price is the most critical element in the restaurant franchise resale process, as this ensures that transactions are fair and beneficial for all parties involved. Franchises, should at all cost, avoid providing franchisees with pricing guidance to avoid any perceived conflict of interest between the new candidate and the one leaving your system.

That’s why it’s important to use a third-party independent resource who will rely upon their own financial evaluation of the business, lending requirements, and comparative sales data to set the appropriate market price.

Franchises can assist in helping their system prepare for an eventual exit by practicing discipline in financial reporting, establishing a standard chart of accounts that all franchise units must conform to, thus, ensuring consistency and transparency in financial reporting. Additionally, having capital requirements plan for resales, which specifies necessary upgrades or improvements before transfer, helps maintain the brand's quality and integrity. These steps can ensure that all units meet established standards, helping to facilitate smoother transactions, uphold brand value, and provide prospective buyers with clear expectations and confidence in their purchase.

Operational and training considerations are critical when transitioning ownership in franchise resales. Addressing the specific training requirements for new franchisees is paramount to maintaining consistent operational standards. A well-defined operational support plan tailored to the needs of transferred units ensures that new owners receive the guidance and resources they need to succeed. This plan should include comprehensive onboarding processes that may differ from those used for new store openings, as resales often involve unique challenges and opportunities. Additionally, the operational team must be clear on their role in the transfer process, ensuring that all Franchise Business Consultants (FBCs) or Area Developers (ADs) provide consistent and accurate support. By focusing on tailored operational support and thorough training, franchises can ensure a seamless transition, fostering confidence in new franchisees and maintaining the brand's reputation for excellence.

Timing and strategy are vital components of developing a successful franchise restaurant resale program. The best time to implement a resale program is literally at the point of launch. Anyone investing in the brand will want to understand that you have clear processes in place for the eventual sale of their unit.

An advisory board for your brand will look for a structured program and timing strategy that helps in predicting and preparing for potential resales, allowing for smoother transitions and minimal disruption to operations. By staying proactive and continuously refining the resale strategy, franchises can better manage the timing of resales to align with market conditions and internal readiness. This strategic approach ensures that the resale process is optimized for success, providing benefits to both the franchisor and franchisees.

Far too many brands avoid conversations about exiting the brand and it is the absolute wrong approach. The most successful franchise’s view franchise restaurant resales as an opportunity for continuous improvement. They have conversations as a routine and normal part of an FBC’s interaction with the operating principals. They integrate discussions on succession planning, resales, and transfers into annual conferences encouraging transparency and keeping this critical topic at the forefront of strategic planning.

Conclusion:
By fostering an environment where franchisees feel comfortable discussing their intentions to sell, franchisors can gain valuable insights and plan accordingly. Additionally, regular reviews of resale strategies and practices help identify areas for improvement and ensure that the program evolves with changing market dynamics and franchise needs. This commitment to continuous improvement not only enhances the overall effectiveness of the resale program but also reinforces trust and collaboration between franchisors and franchisees, ultimately contributing to the long-term success and stability of the franchise system.

In conclusion, a well-structured and strategically timed franchise resale program is crucial for maintaining the vitality and growth of any franchise system. By establishing a clear vision, identifying triggers for resales, and fostering succession planning, franchises can ensure smooth and successful transitions. Additionally, strong restaurant broker partnerships prove to be a proactive approach that contributes to the effectiveness of the franchise restaurant resales process. Continuous improvement through annual reviews and open discussions further enhances the program's success. By prioritizing these elements, franchises can create a resilient and efficient resale program that benefits all stakeholders, ensuring the continued success and sustainability of the franchise.

Robin Gagnon, Certified Restaurant Broker®, MBA, CBI, CFE is the co-founder of We Sell Restaurants and industry expert in restaurant sales and valuation. Named by Nation’s Restaurant News as one of the “Most Influential Suppliers and Vendors” to the restaurant industry, her articles and expertise appear nationwide in QSR Magazine, Franchising World, Forbes, Yahoo Finance, and BizBuySell. She is the co-author of Appetite for Acquisition, an award-winning book on buying restaurants.