Passing the Torch: The Rise of Franchise Resale Programs

The franchising space is witnessing high resale percentages. More franchise brands are seeing significant resales. There could be multiple reasons, including brand maturity and changing market dynamics.

While bringing new franchisees into the fold is a perennial goal, an increasing number of franchisors are also getting serious about facilitating the transfer of existing businesses between owners. According to the 2024 Annual Franchise Development Report (AFDR) by Franchise Update Media, a whopping 61% of franchises now have a formal resale program in place to support transitioning locations.

This data point reflects the evolution of franchise ownership from a linear journey to more of a lifecycle approach. As brands mature and markets ebb and flow, savvy franchisors understand the importance of institutionalizing the resale process to protect system health and continuity. A well-designed resale program ensures an orderly transition that protects all parties involved – the buyer, seller, other franchisees, and the franchisor itself.

Two-Part Strategy

At its core, an effective resale initiative serves two key purposes. The first is giving franchisees who wish to exit a viable offramp and liquidity path to monetize the equity they've built in their businesses over years or decades of ownership. Rather than shutting locations, franchisors can facilitate matching buyers for a seamless ownership change that preserves the franchise, retains jobs, and continues serving the local market.

The second key benefit is creating a structured pathway for new franchisees to more easily enter the system by taking over established units with proven performance history. While launching a new business always carries inherent risk, resales offer a relatively lower-risk entry point by allowing new owners to leverage existing staff, operations, cash flows, and brand awareness. This makes resales an enticing option for prospective franchisees seeking to mitigate startup risks.

With franchisee confidence and unit-level economics being top factors in propelling franchise development, formalized resale programs hit on both fronts. Franchisees can comfortably enter and exit ownership with a clear process, while new buyers take over de-risked units with a track record of performance.

“Multi-unit franchisees will likely switch their focus to growing through acquisition, rather than new builds,” says Greg Thomas, president of LSGF Management and multi-unit franchise owner with Great Clips and Smoothie King. “It's just too expensive to build. On the flip side, there are a lot of older multi-unit franchisees who are simply burned out. Their margins have shrunk, their energy is gone, and their leases are almost termed out. The operators who no longer have debt will be looking to simply sell and retire. I believe resales will be more plentiful and new builds too costly. It'll be a seismic shift.”

Franchise Resale Programs Help to Future-Proof Brands

Creating a successful resale program requires well-defined policies and procedures around issues like approval, training, financials, fees, marketing, and legal prerequisites. Done right, it facilitates ownership transfers that preserve franchise equity and relationships while clearing pathways for new ownership. Done poorly, it leads to haphazard transitions that destabilize units and damage brand continuity.

The prevalence of formal resale programs emphasized in the AFDR data underscores the growing importance as franchise brands mature and franchisee needs evolve. By proactively building out resale processes, franchisors aren't just future-proofing their systems – they're better positioning themselves to attract and serve the next generation of prospective franchisees seeking low-risk ownership opportunities.