What Restaurants Wish They Knew About Franchise Resales

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For many restaurant brands, franchise resales are an afterthought—something to deal with only after handling the more critical functions of operations, new sales, and even marketing. However, restaurant brands ignoring resales do so at the overall risk to the health and growth of the franchise system.

Outcomes of a poorly managed franchise resale program can potentially include closures, operational disruptions, and even damage to a brand’s reputation. Consider a franchisee who is contacted for validation who is able to share they have an exit strategy with residual value, versus one who cannot provide that information or struggles to state what happens beyond his initial term. One situation provides confidence in the brand while the other could indicate risk. That is only one example of how restaurant franchise resales, not only preserve market presence but also assist in strong franchisee validation and help drive net unit growth.

While some franchisors don’t fully understand the complexities and opportunities that come with franchise resales until it’s too late, other take a proactive approach. In this article, by restaurant resale experts, We Sell Restaurants, we’ll explore what franchisors wish they knew about resales, from the risks of inaction to the benefits of a proactive strategy. By addressing these lessons, franchisors can turn resales into a powerful tool for long-term success.

The True Scope of Resales in a Franchise System

Resales Are More Common Than You Think

One of the most surprising truths about franchise resales is their frequency. Many franchisors underestimate how often resales occur. Industry estimates peg transfers at roughly 10% of any restaurant brand’s units. That is the calculation of the number that will transfer each year. To accurately calculate this metric, franchisors need look no further than their own FDD where transfers are captures in Item 20. Brands should expect that if you aren’t checking this number, potential franchisees scouring the FDD are. It is only one reason resales should be a priority for any brand. Rather than ignoring the risk from resales, it is better to accept that they are a natural evolution of any system’s lifecycle. They occur for multiple reasons that may have little to do with the brand itself and everything to do with the franchisee and can include:

• Retirements: Franchisees who have operated successfully for years may decide to step back and enjoy retirement. As the “Silver Tsunami” of baby boomers come of retirement age, restaurant brands are increasingly facing more units at risk.
• Lifestyle Changes: Relocations, changing family priorities, or health issues can prompt franchisees to sell. It’s not uncommon for someone to enter a brand early in their career with late nights and shift to a sandwich concept as they become more family focused.
• Market Shifts: Economic or industry changes can influence franchisees’ decisions to exit. Operational pressures, especially for restaurant owners operating on thin margins, can lead to franchise resales.

• Partnership Disputes: It is not uncommon for partners to drift apart and find themselves in disputes over who is carrying more of the "heavy lifting" in the relationship. This dynamic often leads to resentment and, ultimately, prompts one partner to seek an exit.

• Death, Disability, or Divorce: Just as restaurant brands fail to consider resales, owners frequently fail to develop either a contingency plan or successor strategy for what we often refer to as “three D’s” – death, disability, or divorce.

Proactive planning for resales is essential to avoid being caught off guard from any of these common situations that ultimately result in a transfer. Understanding the inevitability of resales can better prepare their systems to handle transitions smoothly.

Overall, a strong resale program is an indication of overall brand health. It is comforting to existing franchisees to know that equitable resale values are being attained. It is essential to the franchisor to maintain net unit growth and sustain a strong presence in key markets.

The Impact of Poorly Managed Resales

The Risks of Neglect

Despite these warnings and reasons to focus on franchise resales, there are still situations where they may be poorly managed or ignored, with significant consequences including:

• Unit Closures: Without a resale strategy, franchisees who want to exit may simply close their doors, leading to lost revenue and diminished brand presence. Franchisees are often naïve about the residual value of the unit, particularly, those who have been with the system for many years. They may simply see closure at the end of the franchise agreement and lease term as the expected outcome without realizing value in their units.
• Impact on FDD Metrics: High closure rates in the Franchise Disclosure Document (FDD) can lead to additional questions and even deter prospective franchisees. This impacts the franchisor’s ability to attract new candidates and grow.
• Operational Disruptions: Internal teams working on closures are taking valuable time away from pulling resources away from growth and development efforts. This is counterproductive for the brands.

Example

A franchisee of a fast casual brand expanded too rapidly. He had a total of five units but only three were generating cash flow. While the other stores would ultimately become profitable, since they had great locations, the financial pressure on this operator was building. Fortunately, his brand had a resale program with We Sell Restaurants. He contacted us to generate a buyer for his two worst performing stores. While he did not realize significant cash from the transactions, he was able to retain his top three stores including the two that were cash flow positive. In addition, he was able to relieve all liability under the existing leases and remove the pressure from negative operating results.

If the brand did not have a program in place, his only option would be to close two stores that were relatively new but simply undercapitalized. Without support from his franchisor, he has no option except for financial default. With no buyer lined up, the unit closes, and the local market loses its franchise presence. These closures would not only damage the brand’s reputation but also weaken its position with other franchisees, the community at large. In addition, the brand must report two unit closures on the FDD - creating a ripple effect that hinders future growth.

The Benefits of a Proactive Resale Strategy

Ensuring Continuity and Growth

Proactive resale management offers franchisors several key advantages:

• Preventing Closures: As the last story demonstrated, facilitating smooth transitions to new owners keeps units open and operational. Whether a unit is established over many years or simply several months into their launch, the brand name is on the door. Having that store go dark is the worst possible outcome.
• Strengthening Local Markets: Retaining locations are critical to keep the brand growing. The last thing a franchise wants to do is lose their established location to a competitor who takes over the store for pennies on the dollar.
• Enhancing Franchisee Satisfaction: Delivering on exit strategies and providing support during the resale process shows franchisees that their long-term success matters. This is critical as brands balance franchise relationships, profitability, and growth.

Franchisors who invest in a long-term proactive resale strategy demonstrate a commitment to the brand. They show a focus on growth rather than reacting to crises. By maintaining continuity and preventing disruptions, they create a stable and appealing system for both current and future franchisees.

The Role of Experts in Resale Success

Why Franchisors Need Professional Support

Managing franchise resales can be complex and are rarely within the expertise of your existing franchise development team. Luckily, franchisors do not have to go it alone. Professional Certified Restaurant Brokers bring valuable expertise to the table, including:

• Valuation: Accurately pricing franchise units to attract qualified buyers is a key point that should never be undertaken by the brand. This creates an immediate conflict of interest in the value of the business - the existing franchisee or seller and the incoming franchisee or buyer. Brands should turn to independent third-party resources for valuations. Then if the seller decides later that he did not receive enough for the business, or a buyer indicates they overpaid, the brand has absolutely no liability.
• Marketing: Leveraging targeted campaigns to reach the right audience is critical. Franchisors typically have strong franchise development and marketing departments, but they are focused on new buyers with an interest in development. The candidate for a resale, on the other hand, is much more risk adverse, typically has as shorter time frame to get into the business and may have less cash on hand. A brand’s typical marketing will not reach this buyer.
• Transaction Management: Navigating the legal, financial, and logistical aspects of resales is much more complex than new franchise sales. Handing this off to the franchise development team means you have team members that are not trained in how to deal with such disparate parties as the buyer’s attorney, the seller’s attorney, the landlord and landlord’s attorney, the lending projections, bank, and lender’s attorney to name a few. Professionals handle the complexities of these deals daily.

By partnering with experts like We Sell Restaurants, franchisors can streamline the resale process, ensuring compliance with state regulations and freeing up internal teams to focus on development and operations. These partnerships help franchisors turn resales into opportunities rather than challenges.

Lessons Learned and Actionable Tips for Franchisors

Experienced franchisors often share similar lessons when it comes to resales:

1. Start Early: Begin planning for resales long before they are needed. Conversations between franchisees and Franchise Business Consultants on an annual or biannual basis about contingency and succession planning is a must. This is also true of struggling units. After all, if someone is not performing well operationally, doesn’t your brand deserve the best possible candidate for the location? Proactive transfer planning with franchisees can help identify potential resales in advance.
2. Communicate Clearly: Keep franchisees informed about resale processes, timelines, and expectations. Transparency builds trust and reduces friction. Let them know you are open to accepting transfer candidates but clearly share what the requirements will be. Franchisees without the best information and left to their own devices will “fill in the blanks” on requirements and become resentful if you turn down candidates to take over their stores.
3. Form Relationships: Form relationships and national programs with national brands that can support your franchisees. Leverage webinars, franchise conferences and meetings with your franchisees to share this resource with your franchisees.

Building a resale strategy that aligns with brand goals requires foresight and collaboration. By implementing these actionable tips, franchisors can create a system that benefits everyone involved.

Franchise resales are a vital part of a franchise system’s lifecycle, yet they’re often overlooked until it’s too late. Proactive management can prevent closures, maintain brand reputation, and drive growth. By understanding the scope of resales, addressing the risks of neglect, and embracing the benefits of a proactive strategy, franchisors can turn resales into a powerful tool for success.

If you’re a franchisor looking to strengthen your resale strategy, consider partnering with experts like We Sell Restaurants. With the right support, resales can be more than just transactions—they can be opportunities to build a thriving and sustainable franchise system.

By recognizing the importance of resales and addressing them with care and expertise, franchisors can ensure their systems remain strong, resilient, and poised for long-term growth. If you aren’t sure whether your brand is ready for resales, use our resale checklist to gauge your readiness.

> Check out our Resale Checklist at this Link