How to walk the franchise resale tightrope

Franchisors have to perform quite the balancing act when franchisees wish to exit the business

How to walk the franchise resale tightrope

Sooner or later every franchisee ends up wanting to exit the business for one reason or another. For instance, they can be motivated by a change in family circumstances or have a desire to cash in on the business that they have established in order to embark on a new career or perhaps even retire.

However, this does create a situation where the franchisee’s and franchisor’s interests may diverge. While the former quite understandably wants to get the highest price possible for the franchise, the franchisor has other priorities to consider. This is due to the fact that ultimately any responsible franchisor must concentrate on the future prosperity of the person who buys the franchise, even though they know it may be at the expense of a long and harmonious working relationship with the outgoing franchisee. This means the franchisor has to walk a real tightrope.

And even though it may be beneficial for future recruiting purposes to be able to show there is a high exit value attached to the business, this must not be at the expense of burdening the incoming franchisee with a humongous a purchase price.

Therefore the franchisor needs to balance several important factors. First of all there is the overriding need to protect the brand’s reputation, which the entire network relies upon.

Secondly, franchisors must recognise that taking on a large established branch is completely different from starting a one in a virgin territory and can require specific skills. The buyer may need leadership qualities if a number of staff are involved, whereas a new territory may only need the skills to operate the basic business.

Finally, there is the financial aspect to consider. Although the potential new owner may be able to afford the purchase price, they need to have sufficient capital and security to maintain and grow the business.

In an ideal world, every franchisee should treat the responsibility of handing over the reins as if they were looking to find a new home for a beloved pet they can no longer care for. In other words, they’d find a new owner committed to ensuring the business enjoys a smooth transition and continues to be lavished with the same care and attention as before.

At etyres we’ve been fortunate to have instances where departing franchisees have stayed on for a period of time and worked alongside the new owners to effect a smoother takeover, offering advice and guidance about existing systems and processes.

The best advice I can offer anyone looking to market their franchise as a resale is to start planning as far in advance as possible. Let your franchisor know your intentions and work together with them so that the business can be free from obsolete stock, aged debtors, litigation, employee or landlord disputes, unused vehicles and all the other minor issues that have not been attended to when they arose. Most businesses, not just franchised ones, have at least some of these. An added advantage to this openness is that in some cases it is possible the franchisor may already have a list of people who have expressed an interest in buying the territory.

In conclusion, the new owner will have to satisfy the franchisor’s requirements, even if it is a resale, so it makes sense to” work together in order to secure the best outcome for everyone.

Tony Bowman
Tony Bowman