Franchisors many times don’t think about franchisees exiting their system as the opportunity that it really is. Without a formal resale program in place, franchisors can be at the mercy of local business broker, real estate brokers or landlords for the continuity of their locations. When a franchisee is looking to exit the system, they should be embraced and helped in their exit strategy. Many franchisees who want to leave the system are no longer putting forth the effort they they put forth in the first year they opened their doors. By helping a new franchisee take over the location, they can reinvigorate the market and increase their royalty stream from the location. If they aren’t careful, the location can flip to a competitor or just close.
Franchisees should be told that leaving the system is part of franchising and they can help with the transition that will enable them to get a fair purchase price. This is especially true for franchisees that are in trouble and behind in debt or rent payments. By coordinating the efforts and negotiating with the banks and the landlord a potentially disastrous situation can be turned into an opportunity.
The key is to line up professionals who have done franchisee transitions before, on both profitable and unprofitable units. No two situations are the same, but a professional who can understand the landscape and the needs and desires of all the stakeholders (the bank, the landlord, the franchisor and the franchisee) a deal can typically be struck that will put everyone in a better position. As a law firm, we have structured many of these deals and would welcome the opportunity to help formalize a program that many times is an after thought for franchisors.
