How to Create a Franchise Resale Program

WHAT THIS IS:

The lack of a franchise resale program can do some real damage to your franchise development efforts! Not all franchise owners stay franchise owners forever and having a well-thought-out resale program is AS important as recruiting new buyers. Without one, you might close more units than you open and for no particularly good reason. This podcast shares our best practices when it comes to creating a resale program.

READ THIS: Transcript

Welcome to what the FRANCHISE, a regular podcast on franchise development, franchise sales techniques and strategies for growing your franchise system. And today, I have a special guest, Liz Berman, from BizBuySell. And one of the things we’re going to talk about today is something I speak often to on clients is, the importance of having an actual resale program for franchise development.

Thomas:
It’s shocking to me when I talk to clients, even well-established brands way down to emerging brands and they haven’t really given a thought to “how do I exit franchise owners from my system when it’s time for them to exit”? Because not every franchise owner signs a franchise agreement and last for 20 years. The average term, last time I saw some data, was around seven years was the average term. Sometimes that’s shorter, there are emerging brands where somebody might get in on the ground floor, have a really fun two or three of running the business, and then exit and go do something else. Those kind of serial entrepreneurs.

Thomas:
We have a ton of baby boomers today, it’s baby boomers who are aging out of the franchise market. If you’re a baby boomer, you were raised to go to college, to work for a Fortune 500 company, to retire on a pension as early as you could and play golf or live on the beach or go fishing or whatever your life desires. And as that demographic group, which historically had been the main group in franchising for the last 30 years, gets in their late 50s and late 60s and early 70s, we see this incidence of them wanting to walk away from an otherwise completely successful profitable business and not really wanting to mess around with selling it.

Thomas:
So, without very little notice, they just shut down. I’ve seen that with really well established brands. It’s shocking to franchisers, they don’t see it coming but, there’s really no excuse for not having a resale program. So, I invited Liz on who’s here in Nashville with us today in the office, which is a real special treat because, we work real closely with BizBuySell when it comes to resale marketing. One of the things we do with all of our clients is really encourage them to set up a formal resale program. So before I unpack what that means, I wanted to let Liz talk about, share a little bit about what BizBuySell is and why that’s such an important component of any resale program. So Liz, that’s for joining us today.

Liz:
Yeah. It’s my pleasure. Happy to be here.

Thomas:
Why is BizBuySell so important to somebody who’s looking to buy an existing business and who is the visitor to BizBuySell?

Liz:
Absolutely. So, BizBuySell is the larges business for sale marketplace. We work with a network that includes BizBuySell and BizQuest and we have partnerships with a hundred plus really familiar newsgroups. Wall Street Journal, all of that kind of side of things. So that when a business comes up on BizBuySell, it’s not just in one place.

Liz:
It’s important because small business ownership is a definite cornerstone of the American dream in a lot of ways. We definitely want to provide a place, a marketplace, that allows individuals coming into to buy something new, buy books of business, things of that nature to grow their own paths of income, work, all of that kind of stuff to reach that dream. That is definitely what we do.

Thomas:
There’s over 25 million small businesses in the United States. There’s a little over a million of those are franchised units. We’re growing. We’re 1/25th of the population of the … in the franchise industry, we think of BizBuySell as a tool to list businesses for sale. So that’s it’s primary job, it does a lot of franchise lead generation and emails and we use them for a variety of digital marketing strategies that fit in with our organic lead generation strategies.

Thomas:
One of the things I think is really important for you to understand when you’re starting to design your own resale program is, BizBuySell is the dominant platform and they really dominate organic search around business for sale searches. So anybody in any locale down to the very small locales is looking for a business to buy, an existing business to buy, is going to come across BizBuySell. It’s just the gorilla in the room and it’s luckily not terribly expensive to advertise on.

Thomas:
I think one of our tips for brands, if you’re a legacy brand, is you should always buy bundles of resale ads instead of spending $300 or $400 for a single ad that lasts for 90 days, the magic number for us is 26. We try to buy packages of 26 because the pricing is much more attractive. And then you can use them over a long period of time. You don’t have to use them all at once.

Liz:
Absolutely.

Thomas:
So, I don’t know if you want to talk about pricing for … or talk about what a resale ad is.

Liz:
So, BizBuySell, we have between 50 and 55,000 active listings at any time so, we as you said, Thomas, really do dominate in terms of market share and all of the organic searching. When you do a search for “business for sale”, it’s us. You always want to be taking advantage of that.

Liz:
With the BizBuySell listings, we do networks listing between BizBuySell and BizQuest and what happens is you come in, you purchase a package of listings, 26 is a magic number, 50 is a magic number depending on your inventory. And what it is, is you get a credit set for 90 days, or 3 month, showcase level listings which are a higher level listings with us. Essentially, what happens is you get price breaks on different tiers. So the 26 is a magic number because, it’s like 1 to 25 and then 26 to 49. 50 is a magic number. We do 100+ as well.

Thomas:
For bigger brands. Yeah.

Liz:
For bigger brands, of course.

Thomas:
And we’ve had a lot of luck, we were just on the phone today with Merle Norman talking, they had 1200 unit legacy brand with three and four generation owners so, there’s always lots of transition in and out. We’ve done really with AAMCO … you know, I’ve sold my, in addition to being a franchise consultant and a supplier, I’m a serial junkie when it comes to franchising.

Thomas:
Part of being a good lead generator is you psych yourself up enough where you want to buy the brand that you’re working for. That’s true of any sales person. So I actually end up buying franchises. I’ve got some coffee shops from Just Love Coffee here in Nashville that I’m a real fan of. But, to open those, I ended up selling a business we had prior.

Thomas:
My wife and I ran Woops! franchise which is a Macaron business that’s in malls. It was a really fun business. We had it for three years. When we got a little over, busier than my wife was comfortable with running full on coffee shops and cafés on the side, we decided to sell that. We put a business listing up and I got four leads and two of the four leads were buyers and I sold it in 24 hours.

Liz:
Yep. Those conversion numbers though.

Thomas:
Yeah. It’s really really good. It’s nice. That doesn’t happen with everybody but, we’ve used BizBuySell as a primary lead generation tool for a lot of brands over the years. I highly recommend it.

Thomas:
Let’s talk a little bit about what a resale program looks like. So heres, if you don’t have one already, here are the components. I think it starts with education. One of the things that I think people really short change and don’t think about is, one of the things you can do with franchisees is simply educate them on what an exit looks like. I’m a big fan, and having been a franchise owner myself before, of always keeping a report card on your franchisees. Break them into three groups. A, B, and C. A’s are the rock stars. The top performers. The people that subsidize your support team and pay the most in royalties and also, consequently, don’t need as much support. Your conversations with those groups are, “How can I help you?”

Liz:
Yeah. Different.

Thomas:
“What can I do? What can I do to help you?” “We love you. What can we do?” Those are the people that you die to have in relationships. If you’re doing a good job of developing, you should have a bunch of those.

Thomas:
The B group are people that are either new or aren’t quite at the top performer level but, are working towards it. People that you feel like through ongoing support and training in systems and marketing, you can get those people up to speed.

Thomas:
And the third group would be the C group where people that really … you should design an exit. And we talk what that means when I say “design and exit”.

Thomas:
Franchising is almost like a primal business model. It’s full of emotions and psychology and influence and it’s not the same thing as running a business with employees. One of the things that makes for graceful relationships in franchising is simply making sure you always give franchisees choices.

Thomas:
And so, when you explain to someone, let’s say you have baby boomers, they’re not ready to sell today but, I can guarantee you if you have 65 year old baby boomers in your system, there’s a day soon where they’re going to want to sell and you’re not going to be prepared unless you have that conversation with them earlier.

Thomas:
Educating people on what the exit strategy looks like and giving them choices so that they can design their own exit, you could say, “Look, you’re doing great now. If you ever do want to sell or expand, it could go either direction, you could get out or you can dig in and retrench, here’s what that looks like.” And giving people two or three options, which is a trick that I learned from Greg Nathan in Australia who I really recommend, it simply gives people control of their situation.

Thomas:
Most people are so close to the daily running of a franchise and the stress and the highs and the lows and the fun and you walk in and your staff quits, all kind of really … they’re not really thinking long term like you are. You’re in a different perspective than your franchisee is.

Thomas:
So when you can say, “Look, there’s three ways to do this. You can prep your business for sale, and here’s what that looks like and get a high price. Here’s what the strategy looks like when you get ready to sell, you should start six months or a year before and start working towards that goal and here’s a whole list of things you can do to prep for that. It involves things like getting your books in order. Which is the single most important component of selling a business and here’s what a healthy set of books looks like. Here’s what a poor set of books like.”

Thomas:
If you’re like a lot of franchisees, even with strict FTD language and agreement language, most franchisees use QuickBooks to prepare for taxes. They’re not using it real time they way you would like them to unless you’ve got some automated POS system where you can track some of the activity in the business. But understanding and teaching, and we do this through PowerPoints usually when we’re working with franchisees, here’s what drives the value of a business.

Thomas:
I was able to sell my Woops! Franchise, my Macaron business, because I had three locations, they were profitable, I had a set of books. I could literally say in my ad, I think the title of the ad was “Successful multi-unit Macaron franchise in prime locations of Nashville” and I have a P & L and I was able to kind of move it along and I always recommend owners do 50% owner financing on a deal because that sweetens the pot quite a bit.

Thomas:
Generally here’s what drives the multiple. The general rule of thumb for franchises is EBITDA or the owner benefit, which are not always the same number. Your P & L bottom line might be your actual EBITDA but your owner benefit is a pull out what the owner pulls out of the business. The cars they run through it. The educational benefit. Any bills the business pays plus what they themselves and/or a manager might be this kind of chunk of owner benefit. That’s what you have to illustrate to a potential buyer.

Thomas:
So teaching them to understand what owner benefit is, how to get to that number and how to measure it on a monthly basis so that … because that’s what drives the growth. Generally a business that’s got sales increases, even marginal sales increases, would be 2 to 2 1/2 times owner benefit. A business that’s trending downward would be 1 to 1 1/2 times owner benefit. Or sometimes less than one if it’s fell off a cliff and if you have no income, meaning your expenses are more than your sales, then you’re really looking at an asset sale. And that’s a pennies on the dollar equation.

Thomas:
If you have that conversation a year before somebody wants to sell and you lay out the fixes, the here’s what you can do to really move this needle, then you can give somebody an idea of what to work for and how to improve books. I’ve had a lot of experiences where franchisees say, “I don’t think I’m really making money.” And they don’t really know if they’re making money.

Thomas:
We actually do the dirty work of fixing the books and educating on … it turns out they’re making a lot more money than they want. And also, the journey to fix books on a business and get it in healthy bookkeeping condition actually gets people so enamored. It’s like staging your house to sell. You stage your house, you decorate it, make it look beautiful. And then you go, “Wow. I love this house. I don’t want to move.”

Liz:
It’s new again.

Thomas:
So they start … it’s a funny thing. But all of that is franchise support psychology that needs to happen early on. That’s the first part is educational. That can be a, “Here are the levers you need to pull to design your exit.” Design a deck and explain valuation. Explain the importance of books. Explain what drives owner benefit.

Thomas:
Explain the strategies to generate leads for your business. Having a formal lead generation program of some … here’s what a … because, buyers don’t fall out of the sky. It’s not like it’s realistic for a franchisee to expect that $200,000 of advertising you’re spending to grow the franchise system as a development executive, that really shouldn’t go to a resale. You want to go to adding new units. Luckily, the avenues and place people to buy existing businesses are different than where they look to buy new franchises.

Thomas:
It’s easy to say, “Look, here’s the price for a BizBuySell resale listing. Here’s what an email blast costs. Here’s a little bit of Facebook marketing geofenced in your area.” Maybe it’s at the $1,000 of advertising over 90 days. It’s not a huge thing but, that’s what it costs to really attract a good buyer. I probably had 500 bucks in advertising for my Macaron franchise and was able to get a buyer in 24 hours. I’m in the business of doing that so that’s not really fair. That’s not a normal event. But I see people sell businesses all the time.

Thomas:
So laying out a package, and Liz Berman who’s a really good resource for that because that again, there are companies that just use BizBuySell for resale programs. I generally recommend having a mix of BizBuySell products for resale listing. So, listing your business.

Thomas:
Having a landing page on your website that’s not part of the navigation. So, one of the things you don’t want to do is, on your franchise or premium website, have a big button that says, “available franchises for sale” because it sends a really bad message. It’s like if you go into a neighborhood and every house on the street is for sale, and none of them are selling, it sends a real negative message. Plus, if people come to look at your franchise and they see there’s resale opportunities, it’s like a magnet. You can’t ever get them back to learn about the franchise opportunity.

Thomas:
I do think having a hidden landing page that you can share the link with people is really valuable. Then you can explain if we’re talking about Merle Norman or AMMCO, trying to restart a legacy market where they’ve just aged out or the leases are up. Or there was a shooting in a mall and the mall’s dead and it’s time to move the Merle Norman to another location, whatever the issues are, there are ways to find buyers for those.

Thomas:
Definitely a resale program would have some advertising components so BizBuySell. We’re big fans of doing dedicated Facebook marketing for leads in the geographic area using a variety of visual content that links to the landing page on your website. So that you can generate using a lead form on Facebook.

Thomas:
Also sending dead lead emails to your database. Pull all the leads you’ve generated forever. From North Carolina, if you’re in Charlotte, and sending a quick and dirty, “Hey. We have opportunities for resales in this market. If you’ve ever looked at us and you’re still in the market and you haven’t bought something check out this listing.” So, they’re getting to that landing page which isn’t linked to your navigation just through an email. It’s an easy way to leverage your support.

Thomas:
Generally, Facebook, email and BizBuySell are what compose … we usually can sell a business with one of those three pieces. That’s a pretty diverse thing. Some people just do BizBuySell. So I would have that as a way. And make sure that the educational component is straight up.

Thomas:
Now, the one piece of this that I didn’t talk about and I think it’s really important and people cut corners on is your operations support team who don’t typically think like franchise sales people or recruiters, really spend time to train them to have conversations about what the exit looks like way in advance. So, even as early as initial training saying, “Here’s what the life cycle of a franchisee in our system looks like.” We’re all having our honeymoon and everybody’s excited, we can’t wait to go make smoothies or sell juice or flip burger or clean carpet or whatever it is we’re going to do in this franchise enterprise but, we really should talk about what a typical lifecycle of a franchisee looks like in our system. The average tenure is 19 years or 7 years or 12 years.

Thomas:
Some people are in their third generation of ownership and here are some people that we can spotlight. Some people are serial entrepreneurs and have a business for three years and flip it and move on. I’m slightly guilty of that myself. That’s okay if they’re good operators and they can turn it into a profitable business.

Thomas:
So, when you get to this point in business, and The E-Myth is a good book to read that kind of helps people understand the psychology of the life cycle. Greg Nathan’s books on franchise recruitment are also ones I recommend for everybody. But just set the expectation that, look, life is a journey and every journey has an ending and that’s normal. There’s normalcy to that. So, if you get to where you’re not having fun and you don’t enjoy this business, we don’t want you to hang around and be a turd in the punch bowl. That’s what my wife likes to say. We want people to enjoy this business and have happiness.

Thomas:
So when you get to that point, here’s what those conversations look like. Here’s how to plan for it. Here are some … you know, you might have relationships with business brokers, a lot of brands also have resale brokers that they engage.

Thomas:
Then the last piece of a business resale program is deciding a, whether you want to use business resale brokers or whether or not you want to pay a commission to the internal sales person. I don’t think it’s right to expect your internal sale people to work resales without a commission. We often explain up front, “Hey. If you pay for the advertising, there’s a $7500 or $10,000 commission due or 10% of whatever you collect up front due on the business.” And that’s the way that works. You can work it yourself, you can hire a business broker or you can hire us.

Thomas:
It goes back to giving people choices. You’ll find that people will design their own exit and they’ll have a real clear thing. Instead of it being a contentious litigation piece, “Hey. I think I’m ready to exit the system.” “Oh great. Let’s start this process then.” If you have a really well-established business resale program life is a lot sweeter, a lot less contentious and a lot less stressful.

Thomas:
Again, Liz, if you want to share your email and phone contact information with us for users.

Liz:
Yeah.

Thomas:
In case.

Liz:
Of course. Yeah, so, Thomas is 1000% correct, the education is so important and when you have a program in place, it’s really very easy to just reproduce it. You’ve got North Carolina, something exiting there, you do this thing, it works really well. It can work just as well for Georgia. It can work just as well for Florida. It can work just as well for everywhere. We can absolutely do that.

Liz:
That kind of advertising number was really pretty accurate as well. In general, bigger states are going to cost a little different than smaller states but, there’s usually a lot of different return on investment for that.

Thomas:
A resale listing is the same no matter where it is-

Liz:
Yeah. A resale listing is the same cost. You know-

Thomas:
Email marketing.

Liz:
You get deeper discounts, yeah.

Thomas:
Like targeted email marketing if you need to go to that level. It costs more.

Liz:
Yeah. But the programming of it is very, very similar and reproducible. In the tiered pricing on the listings can get you 59% off of the retail cost of a per listing. There’s good discounts available on there for some of the bigger buys. The smaller buys have at least 28% off so, you’re good there too.

Liz:
The targeted state pieces are just dependent on the states themselves. Idaho’s going to cost a lot less than Texas.

Thomas:
Or California or here.

Liz:
California’s going to cost a lot different than here in Tennessee.

Thomas:
Everywhere else.

Liz:
It depends but, there’s a tried and true way of doing it and I work with individual brands, with brand journalists here, different brokers and et cetera as well.

Liz:
You can absolutely connect with me directly. My email is E, as in Elizabeth, Berman, B as in boy, E-R-M-A-N at BizBuySell, and that’s B-I-Z-B-U-Y-S-E-L-L, .com. Email is generally the easiest way to get to me but, I can also be reached at 844-481-1795.

Thomas:
All right. Thanks Liz. And last stat of the podcast before we wind up is just when I have a deck, a slide in my deck when I’m talking to new clients that I always explain is where do deals come from. That’s something everybody wants to know. 5% of the deals we do every year are resales. If you look at that if you did 25 deals, were 5% of them resales last year in your system? You didn’t do any resales? I guarantee you you’re missing opportunity because, rather than have a unit close and have to post it as a loss, helping somebody design and exit and recruiting a better person or, sometimes it’s an upgrade.

Thomas:
It’s not always an upgrade but sometimes, it is an upgrade. There are people who love to buy existing businesses and can ramp performances up sometimes as much as 40%. And that’s all they look for. They don’t really want to do the hard work for building a new unit out. They want to get one that’s not run as well as they think it could be and then they’re good operators and they come in and turbo charge the business.

Thomas:
The last piece, so 5% of deals, so if you’re doing 5% resales, you’re good. If you’re doing more than that, you might have some issues in your system you need to looks at. If you’re not doing 5%, you’re probably missing some opportunities to increase. Because, you have to stay ahead of that with all the baby boomers exiting, you’re going to end up having some sales decreases and unit counts because you just were slacking off when it came to thinking about your resale program as much.

Thomas:
The last tip, one other tip, the longer we talk I got more tips. Really think about combo deals. When you market resales, one of the things that a lot of systems, we did this with Fantastic Sams over the last few years with some really astounding success, is bundle an attractive resale at an attractive price point, with good owner financing.

Thomas:
Which is something you can do if you have a business that’s not as profitable, being willing to have owner financing and carry a note, interest-free note even, makes it so easy to find a buyer. People jump at that. There are so many young buyers that just can’t get a break from a bank and owner financing is super attractive but, packaging it as a combo where you buy this one, you get it straightened out, within a year you open your second one and you get a multi-unit deal with three units. But it starts with the acquisition of a resale bundled together with kind of improving a trade area. There are people that buy into that, that would never ever buy a franchise from you straight up but, the combo deal is the way to start that conversation and increase your unit count.

Want help creating your own resale program? Reach out and start a conversation with us!