Why Proactive Management of Franchise Restaurants Resales is Essential for Growth

Franchise resales are an inevitable outcome of the lifecycle of any restaurant’s system. Unfortunately, the topic is frequently ignored or simply managed in a reactive manner. That is why the team at We Sell Restaurants believes it is time for franchisors to focus on this key part of their brand. Between more franchisees reaching retirement age without heirs or succession plans and others discovering the business is not for them, resales are no longer a rare occurrence—they are a critical factor in sustaining and growing a brand. When ignored or mishandled, franchise restaurant resales can lead to unit closures, loss of valuable market presence, and missed opportunities for growth.

The hidden costs of neglecting franchise resales go beyond lost revenue; they can disrupt operations, tarnish a brand’s reputation, and hinder future franchise development. However, proactive management of resales can turn these challenges into opportunities, ensuring seamless transitions and a thriving system.

In this article, we look at the risks of ignoring franchise resales, including closures, stalled growth, and declining FDD metrics. To offset the negative impacts, we will also highlight the actionable strategies franchisors can implement to manage resales effectively and drive sustainable success.

What is the Risk of Closures?

A failure to manage franchise resales often leads to closures. Franchisees who are nearing the end of the term, or facing significant personal or financial issues, can suddenly shut the doors, despite the performance of the location or opportunity for the brand. This creates a significant threat to market presence and long-term success. Franchisees nearing retirement or facing financial difficulties may feel embarrassed or be reluctant to engage with the brand if there is not a structured resale plan in place.

This creates a ripple effect. A single unit closes, eroding customer trust and diminishing the franchise’s visibility in key markets, impacting other units in the market, affecting the combined ad spend for the area, and further undermining growth.

That is why brands must understand that a single closure is more than just that one store’s lost revenue. They represent a loss of strategic positioning and an uphill battle to rebuild in that area. Reopening a closed location can mean higher costs logistical challenges than proactively selling the unit to a new owner. Landlords, feeling blindsided by a closure and facing his own issues, may be reluctant to re-engage for a new tenant of the same brand. Meanwhile, a proactive resale strategy could significantly reduce this risk, prevent closures, protect market share, and maintain customer loyalty. That ensures the brand will thrive even as franchisees transition out.

 Loss of Important Real Estate in Prime Markets

Losing any location is tough for a franchisor but losing a prime location because there is no resale strategy in place is short-sighted. Locations are among the most valuable assets in any franchise system but are the first casualties of neglected resales. When franchise units in high-traffic, sought-after areas close, competitors are quick to seize the opportunity, eroding the brand’s market presence and giving rivals an advantage. The worst possible outcome of a closed location is a key competitor taking over equipment and trade dress for pennies on the dollar.

The cost to secure that prime real estate includes not only the cost for this location but the added expense of other stakeholders in the brand who have significant time in each location. This includes the real estate team who travel to conferences, meet with developers, and launch software systems to identify key locations for the brand. Each open location has drawn on the legal team and its costly resources to draft and shepherd lease agreements through multiple reviews before signing. It also includes the work of the operations team that helped get this store from “sold not open” to income producing. In the marketing world, there is a rule of thumb that acquiring a new customer can be five times more expensive than retaining an existing one. This same rule of thumb applies to closures versus retention of these franchise restaurant units. It is far more costly to close the doors on a location and start over than retain a unit in place with existing customers and royalty flow.

Stalled Growth When Restaurant Closures Outpace Resales

High closure rates create a drag on a brand's growth, directly impacting unit growth numbers and reducing net gains. It is impossible to “outsell” closures in a mature system, another reason a resale strategy must be implemented. Franchise development teams are tasked with spending countless hours chasing leads, conducting discovery days, and closing leads but these efforts can be quickly overshadowed when closures outpace resales. This imbalance not only stunts regional and national expansion plans but also disrupts a brand’s ability to gain market momentum.

Proactive resale management can reverse this trend by ensuring seamless transitions between exiting franchisees and new, motivated owners. The easiest way to implement a program is on day one. Early in the career of new franchisees, discussions should take place about exit strategies; discovery day is not too soon to start the process. It is truly the only way to keep unit numbers stable while maintaining brand visibility and customer loyalty. An effective resale process contributes to validation, a key part of franchise sales. Happy franchisees exiting the system with money in hand are much better than those closing their doors and grumbling on the way out of the system.

Operational Disruptions: Pulling Teams Away

When closures occur, they can divert critical resources away from growth-oriented initiatives, forcing internal teams to focus on damage control. This can include managing the logistical challenges of shutting down operations or dealing with landlord negotiations. Overall, closures pull franchise development teams away from their core mission: building the brand through new unit openings and regional growth.

Over time, this diversion can strain team productivity and morale, hindering long-term franchise development. By outsourcing resale management to experienced Certified Restaurant Brokers, or specialists, franchisors can offload this burden. This approach allows internal teams to focus their energy on expansion while ensuring resales are handled efficiently and professionally, minimizing operational disruptions.

FDD Numbers and Impact on New Franchise Candidates

For prospective franchisees, the Franchise Disclosure Document (FDD) is the key indicator of any brand’s health. High closure rates or a lack of proactive resale management create opportunities for questions about the brand’s stability and potential. Candidates scrutinize Item 20 closely, and while there has been plenty of attention on brands with “sold not open” statistics sitting there, a negative trend on closures can be even more jarring to the franchise candidate. That leads to lower confidence in the opportunity and could deter high-quality buyers from joining the system.

Management of a franchise system means a proactive resale strategy that not only reduces closure rates but enhances the FDD metrics, presenting a more attractive profile to potential franchisees. A history of seamless resales signals that the franchisor has a strong infrastructure in place to support transitions, reinforcing the brand’s reputation and appeal.

The Solution: Proactive Management of Franchise Resales

The risks are clear as well as the path forward. To address the challenges of restaurant franchise resales, franchisors must treat these transfers as a strategic priority. Start by identifying units at risk of early closure. This can include franchisees with cash flow problems, low earnings, low operating scores or nearing the end of their franchise term. Virtually every stage of the franchise lifecycle can and should encompass some form of closure mitigation.

Engaging with and providing professional resources can be a simple approach to a complex problem. Certified Restaurant Brokers like those at We Sell Restaurants understand the resale process. Allow them to conduct webinars with your franchisees and provide tools and checklists. As part of your corporate culture, begin to discuss words like “Exit” and “Fail” as if they are not four-letter words but instead, are part of the evolution of the brand. Make sure your operations team is having regular conversations during market visits about succession planning.

Implementing a strategy to face the challenges of resales allows you to act before closures become inevitable. Brands that have embraced proactive resale management have seen measurable results. For instance, a franchisor that partnered with We Sell Restaurants successfully transitioned 90% of its at-risk units, maintaining market share and driving growth. These success stories underscore the value of prioritizing resales as a critical component of franchise operations.

Franchise resales are not just a reactive process; they are a strategic opportunity to sustain and grow a brand. Ignoring resales leads to closures, the loss of prime locations, stalled growth, operational strain, and damaged FDD metrics. Proactive management ensures that transitions are seamless, units remain operational, and the brand continues to thrive.

➡️ Download our Franchise Resale Checklist to Determine if Your Brand is at Risk

Are you prepared to tackle the challenges of franchise resales head-on? By taking immediate steps—leveraging expert brokers and streamlining internal processes—you can transform these challenges into growth opportunities. The question is: will your brand seize the moment, or will hidden costs hold you back?