Jeff Todd, Director of Resale at Meineke, explains how resale can drive growth – not only for franchisors, but for franchisees, too
For most mature franchises, resale is a common feature of the system. Franchisees may decide to sell for a variety of reasons, but it can be an opportunity for a franchisor to strategically incorporate resale into a larger franchise expansion initiative.
If the resale process is handled deliberately by selling franchisee and franchisor alike, it can be a meaningful tactic to drive growth – for the franchisor and franchise system, and also for the franchisees as buyers and sellers.
For Meineke, our proactive resale initiative has been an opportunity to renovate and upgrade existing car care centers in order to attract a new profile of franchisee – multi-unit investors looking to diversify their portfolios in a strong industry like the automotive aftermarket.
We’ve also been unafraid to suggest to outdated operators that selling may be in their best interest and even shuttering centers that were deemed to no longer be favorably located.
In return, we have attracted a crop of multi-unit investors to our system who are motivated to pursue aggressive growth plans in their territories.
While not all franchisors may be seeking a new profile of franchisee for a resale or have the resources to invest in upgrading to attract these buyers, a strategic rather than passive approach to resales will ultimately benefit not only the growth goals of the franchisor, but the financial objectives of buying and selling franchisees as well.
Below, I’ve laid out the ways resale can drive growth, and the role a franchisor can have with both selling and buying, to ensure all parties can financially benefit as much as possible from the process.
New franchisees can hit the ground running
A key selling point of a franchise to an interested entrepreneur is the training and support offered to new franchisees, and the opportunity to leverage a proven business format.
However, a resale offers all of these traditional benefits, as well as an existing client base, brand presence in the market and, in many cases, existing staff and equipment.
With these assets, it makes it easier for a new franchisee to hit the ground running and begin growing their business almost as soon as the transfer process is complete.
A franchisee will likely be drawn to an investment where success is easier to predict – such as an existing location with a proven track record of sales and growth.
For sophisticated investors, especially those looking to take over more than one existing center in a territory or market, it can be a clear pathway to growth depending on the business opportunities and investment levels of the franchise itself.
For the franchisor, attracting these types of buyers means preparing the selling franchisee ahead of time for the buyer’s due diligence process.
A buyer carrying out his or her due diligence will likely come upon any issues that are unsustainable or not advantageous to the operation, such as a lack of formal contracts when it comes to key customers or suppliers, or even a crucial employee.
It’s up to the selling franchisee, with the help of the franchisor, to identify these potential concerns well before the disclosure process and correct them. This allows a buyer to remain motivated to take on the business and push for growth.
Selling franchisees can create a springboard for the next phase
Sellers may decide to sell a franchise for a variety of reasons, such as illness, retirement or a desire to focus on/pursue other investments.
Ideally, a franchisee’s original business plan includes an exit strategy from the beginning, perhaps including selling the franchise after a certain number of years.
Succession should be a topic a franchisee is familiar with and be included in their business plan.
Just as it behooves a franchisee to be prepared, a franchisor needs to be paying close attention to the resales on the horizon in the system and make it part of a larger internal discussion around franchise growth.
This way, a franchisor can be involved early on to make sure a franchisee can take advantage of the franchisor’s support and involvement in the process.
As the seller endeavors to clearly demonstrate the investment value of his or her business, a franchisor can provide assistance in addressing any areas of weakness that a buyer might address during the sale process – not simply cosmetic issues, but operational improvements that maximize value.
By working closely with a franchisee to map out a potential resale well ahead of time, a franchisor can help shield the sale from a franchisee’s personal impulse or emotion.
Ideally, a resale should be positioned for potential buyers as an investment based largely on market demand.
Helping a franchisee plan strategically will likely boost his or her ROI on the sale, and the franchisor will have more control of the profile of the buyer who ultimately takes on the location and joins the system.
Franchisors can increase market presence and refresh the franchise system
A proactive resale initiative takes discipline and investment in the resale process on the part of a franchisor. Helping franchisees plan for and prioritize a graceful exit should be part of the value proposition.
Ensuring a franchisee knows he or she can depend on a competitive valuation when the time comes to sell will attract top quality candidates to the franchise model.
If a company is able to ensure a smooth turnover of a franchise territory from one franchisee to the next, that means continued growth for the territory, a refreshed system and satisfied validators on both sides of the succession component of the investment opportunity.
After all, a franchisor is involved in any sale, since the brand often has the right of refusal over a sale and will need to sign off on a potential buyer after undertaking its own due diligence.
From a strategic growth perspective, a resale allows a franchisor to attract a new generation of franchisees into the system – in the case of multi-unit opportunities for resale, it can mean bringing in sophisticated investors with an eye on expansion who can grow a business far beyond its previous confines.
With an established business in place, new franchisees are better able to focus on expansion, pushing the edges of possibility in a territory, and growing the profile and the awareness of the franchisor itself – helping to drive franchise development for the long term.
When a franchisor sees a resale as part of a larger revitalization of a franchise system, routine franchise resales can be a tool for bringing in a new generation of franchisee, and growing faster and more strategically within existing territories.
Why should prospective franchisees consider a resale?
1. Existing cash flow
2. Customers in place
3. Brand presence in the market
4. Managed risk than starting fresh
5. Verify your investment with actual performance figures
ABOUT THE AUTHOR
Jeff Todd is the Director of Resales for Meineke, a division of Driven Brands, the nation’s largest aftermarket automotive franchisor. An experienced transactions expert, Jeff has been the engine behind Meineke’s proactive resale initiative, closing more than 100 deals since 2015.
