How CEO’s Build Restaurant Resale Strategies for Net Unit Growth

As brands embark on their goals for the year, thoughtful CEOs are including a focus on franchise restaurant resale strategies at the forefront of their thinking. Why? Growth without retention fails the test of net restaurant growth and is precisely why the key element of a thoughtful franchise development plan includes a focus on maintaining existing locations. After all, for each location that closes, you must open two to achieve net restaurant growth for the brand.

A franchise resale program is a structured approach to managing the transfer of ownership for existing franchise units. It facilitates smooth transitions, ensuring that locations remain operational and continue contributing to the brand’s overall success. The International Franchise Association estimates that any franchise brand will experience 10% churn in their unit count. This can be higher or lower depending on the lifecycle of the franchise brand. Failing to account for that ten percent, however, places the brand at risk in multiple ways.

In addition to the financial cost from lost royalty streams there are other risks to the brand. Without a proactive resale program, franchisors risk losing valuable real estate in key markets, face operational disruptions, and damage their Franchise Disclosure Document (FDD) metrics. These challenges can have a ripple effect, stalling brand growth and deterring potential franchisees.

It is truly critical for a brand’s long-term success and yet, it is the most overlooked portion of most franchisor’s strategy. An overarching focus on adding units, without accounting for loss in store count is expensive, reactive, and short sighted. One of the most effective tools for sustaining and enhancing unit growth: a well-executed franchise resale strategy. When franchise units change hands smoothly, they not only prevent closures but also open doors to motivated new owners who can reinvigorate the business, add units of their own, and contribute to overall brand health.

Franchise Restaurant Resales – It’s Not My Job

Here’s why a franchise restaurant resale program starts at the top and cannot be delegated to the other silos in the franchise including.

Franchise Development

Development teams should be focused on growth. The customer they attract to the brand is a customer ready to invest in new territories, build locations, and start from scratch. They market, and attract buyers for the restaurant franchise, based on the model of opening stores. The franchise restaurant resale candidate is not the same client and the expertise to recast existing profit and loss statements, perform valuations, and accurately represent the interest of two different parties does not lie within your franchise development team. Smart CEOs know this and do not delegate this function to a silo that does not have the expertise to handle it.

Franchise development teams on the other hand, don’t like or want the function of franchise transfers. Their skillset is aligned with new store openings, not thorny transfer issues. They are not looking at saving existing units, only driving growth for new one. It’s not uncommon for franchise development to attribute lost units to operations who “failed to coach them,” or “missed the signs” they were ready to retire without an exit strategy.

Operations

If you ask operations where transfers fall in their duties, the responses are similar. After all, they bear responsibility for both opening new stores and coaching performance from existing stores. They rarely, if ever, have conversations about succession planning or exit strategies. They have no experience or knowledge of store valuations and should avoid these conversations overall. Operations will view stores on the cusp of non-renewal as someone’s responsibility in compliance who “failed to track” units nearing end dates on agreements. Frequently stretched thin and with a large number of stores and few people, they may look at the lowest performers as a “lost cause.” They fall prey to the belief that all units will just organically sell internally while keeping blinders on about the need for a franchise restaurant resale strategy.

Compliance

Forget about using those in compliance to assure that non-renewals don’t occur. You hired your compliance team because they know how to check boxes and confirm your franchisees are operating to the brand’s standards and requirements. These are not the individuals that can offer up a strategy to transfer a sellable store to someone else.

A Franchise Resale Program Starts at the Top

That is why it takes the overall vision of a CEO to look beyond the independently operating verticals and provide direction to both open new stores and retain existing units, leading to net restaurant growth. This can take multiple forms. Common strategies we have seen from working with restaurant franchise CEOs over the past twenty years include:

Franchise Restaurant Resale Consolidation Strategy

CEOs undertake this strategy by working with resale partners like We Sell Restaurants to roll single unit operators under the control of a larger multi-unit group. This generally occurs at a more mature time in the franchise brand when certain operators demonstrate their ability to lead multiple stores and franchisors begin to see the value of dealing with fewer, more established, players.

Legacy Unit Franchise Restaurant Retention Strategy

This strategy is often at the forefront of a CEO’s vision when he or she leads a mature brand with multiple units that are up for renewal within a tight period of time, for example, the next five years. This is closely tied to when the brand originally sold most of its units, increasing risk for closures absent this strategy. Legacy owners represent a larger risk since most of them have already cashed in on earnings over a long period of time and will close without transfer absent a specific strategy, especially if the own the real estate. Most can cash out the real estate for large sums and this is where brands see competitors take over their prime space.

Emerging Brand Turmoil Strategy:

Brands with under fifty units that are still in the “emerging” category have CEO’s wearing multiple hats and dealing with mistakes of any startup. These CEO’s need a franchise resale strategy to preserve the growth of the brand. They have stores open that should never have been sold. Trust me - we’ve all been there as franchisors. They have struggling stores because they didn’t have a strong operational foundation early on and it’s too late to change the path of some operators. These CEO’s employ the power of a restaurant resale partner like We Sell Restaurants to stabilize unit counts and prevent erosion in these early stages.

Corporate Store Sales Strategy

CEOs will often call on a third-party resource for the sale of their corporate stores. This allows them to free up important capital to reinvest in franchising. They recognize the value of having a third-party valuation and representative in the transaction so their own time and that of their team remains focused on growth.

Multi-Unit Deconsolidation Strategy

CEOs close to their operators know which units are struggling with operations including multi-unit operators. They will undertake a deconsolidation strategy. In this scenario, restaurant brokers work with multi-unit owners to balance portfolios over geography and earnings contribution to peel off units that are sold to individuals, thus it is the inverse of the first strategy to consolidate.

Depending on the lifecycle of the brand, the strength of operations, the sales cycle, the unit count and other variables, the right strategy can vary from brand to brand. This is precisely why it takes the unique skills of a CEO to identify and build a robust resale strategy that ensures smooth transitions, supports net unit growth, and safeguards the brand’s reputation in an ever-evolving market.

Key Components of an Effective Resale Strategy

Building a successful franchise resale program requires attention to several critical components:

Clear Vision and Communication

CEOs in charge of their brands establish a written vision for franchise resales and communicate it across the organization. They ensure that franchisees, development teams, compliance, and all verticals understand the importance of resales in driving brand growth. They identify, vet, interview, and become a champion of the trusted resource like We Sell Restaurants as an integral part of the company’s strategy.

Proactive Succession Planning as a Culture Change

CEO’s encourage franchisees to engage in annual discussions about succession planning. Unlike brands that avoid the discussion, they encourage active conversations around the varied models for selling your store. It is not a forbidden topic, but instead, a part of the culture of the brand. Through this culture change, they know they can identify potential resales early, avoid rushed transitions and ensure smoother handoffs.

Legal Compliance and Licensing

CEOs work with trusted brands that are vetted for the restaurant franchise resale partnership. They ensure that any Restaurant Brokers aligned with the brand are licensed and insured in all the states in which they operate. They recognized that a national brand may be the best resource to avoid having their brand entangled with smaller operators or those that may not be properly licensed for business brokerage, as required in certain states. This step is crucial for avoiding legal complications during the resale process.

Resource Partnerships

CEOs taking a visionary approach to net restaurant growth make tools available to their franchisees including materials developed by their partner in restaurant resales. These can include webinars for their franchisees, sessions at annual conference, intranet resources like e-books and articles, newsletter articles to franchisees. They directly leverage the resources of the firm to provide information for franchisees.

Valuation Consistency

A third-party firm will produce reliable estimates of market value for franchisees without fail. Certified Restaurant Brokers are trained to deliver evaluations that stand up to SBA lending requirements and setting measurable and lendable levels of valuations for your brand. CEOs know that having accurate valuations raises the overall value of the brand on the resale market and aids in validation for new franchise candidates.

Conclusion

A well-executed franchise resale strategy is a cornerstone of sustaining net unit growth and protecting brand reputation. CEOs focused on true net restaurant growth understand this critical prat of their brand and know that by facilitating smooth ownership transitions they can keep locations operational, attract motivated franchisees, and ensure long-term success.

For franchisors looking to enhance their resale programs, partnering with experts like We Sell Restaurants can make all the difference. From valuation to marketing and buyer screening, our team provides the tools and expertise needed to drive results.

Take the first step toward building a proactive resale strategy today. Contact us to learn how we can help you transform challenges into opportunities and achieve sustained growth for your franchise network.