franchising aspects Apr, 23 2010

Re-selling: a boon for franchising

Franchising just like any other business has its share of loss and profits. Re-selling often associated with an unsuccessful business is turning out to be a profitable venture for the aspiring entrepreneurs. Explore more of it

By Abha Garyali
Sub Editor
Re-selling: a boon for franchising

A franchise re-sale takes place when an existing franchisee wishes to sell their franchise to the new franchisees. Re-selling can take place for many reasons. Though the franchisor owns the brand and is the brain behind the brand but as franchisee has signed a franchise agreement and has taken up the franchise in lieu of franchise fee so he has all the rights to re-sell it. Thus, the franchisee has the right to re-sell his business if he wants to earn the capital value of it. However, this process needs the permission of the franchisor as well.

With franchising being the most successful and profitable mode for starting a business, more and more entrepreneurs are joining the bandwagon. Therefore, the process of franchise re-sale offers excellent opportunity to other aspirants as well. Once all the territories of a franchised network have been allocated, the only way for a prospective franchisee to join is by buying an existing business from a franchisee.

Factors attributing to re-sale

There are many factors that can lead an old franchisee or a franchisor to think about re-selling. A few have been discussed below:

  • Loss of interest by the franchisee: Sudden loss of interest by the franchisee may fail to generate profits leading to its failure. In few cases, the old franchisee may stop caring for the business. Before reaching this situation, the franchisee can consider re-selling the franchise.
  • Health related problems or death of franchisee: A franchisee may consider re-selling his business due to health related problems. Moreover, he can sell it to gain money for his treatment. In a few cases, sudden demise of the franchisee can also lead to re-selling of the business.
  • Moving abroad: Franchisees who have their children or families overseas can consider re-selling their business to settle abroad.
  • Problem in handling: A few franchisees may face problem in managing the franchised outlet. Maybe because of the large territory, or insufficient skills to handle the business properly.

Franchisor’s role in re-sale

When the old franchisee voices his opinion of re-selling the business, the franchisor must be involved in the process to some extend. It is the franchisor’s duty to manage the new franchisee’s expectations from the beginning. Franchisors must also be aware of the areas in which the prospective franchisee would need his advice or experience. Instead of separating themselves from the re-sale process, the franchisors should take an active part in it. They should do more than just approving the new franchisee.

Benefits of re-sale

Earlier the concept of franchise re-sale was seen as a negative process, particularly by the franchisors. Many considered that re-sale is often the outcome of a failed business or a discontented franchisee opting out of the network. However, with time the concept of re-selling is gaining wide acceptability with more and more numbers of re-selling taking place. Given below are the advantages of this process:

  • With franchising gaining maturity, more re-sale is going to take place in the near future. Old and retired franchisees will give way to the new franchisees through re-selling. Therefore, re-sales are inevitable.
  • A new franchisee taking over the existing unit will always strive to improve sales and profits. Moreover, the new franchisee buying the old unit is sure to be successful due to high enthusiasm and optimum energy level.
  • Re-sale can provide the opportunity for a franchisor to divide the territory between two new franchisees. In few cases, maybe the reason for re-sale can be due to the franchisee’s inability to handle or maintain the large territory. This can be achieved by the franchisor buying the old unit back and re-selling it to two different franchisees.
  • By the concept of re-sale, the franchisors can negotiate with the under performing franchisee and can take further steps to snap the tie-ups.

Parties involved in re-sale

The three parties which are actively involved in this process are the old franchisee, new franchisee and the franchisor. Therefore, consideration must be given to all three parties:

  • The outgoing franchisee’s role:
    • Firstly, the franchisee must inform the franchisor about his decision of re-selling. It is a long process and may take time to materialise the whole process. Keeping the franchisor in loop is advisable.
    • Prepare by collecting information needed by the prospective franchisee. He should make his accounts clear.
    • The franchisee should not keep the prices very high. Re-selling can be done easily when prices are reasonable. .
    • Negotiating with the aspiring purchasers is a good idea. 
  • The incoming franchisee’s role:
    • The new franchisee should fully investigate all the aspects of the business.
    • Negotiate on the price offered by the old franchisee or franchisor.
  • The Franchisor’s role has already been discussed earlier. He has to play an active role in the whole process. Moreover, he can also introduce potential purchasers to the franchisee to help in the process.

To conclude, it can be said that re-selling of a unit can be advantageous to all the three parties involved. Further, re-selling is also profitable for the aspiring franchisees, as it has already gained its popularity among the customers.

Related: Pilot Franchise: Stepping Stone To Success

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