Franchisee Departure: Preparing For The Worst & The Best

When an entrepreneur starts a new franchise system they rarely consider the situation of a franchisee leaving their system. In fact many of my clients who run established and successful franchised businesses are often inadequately prepared for how a franchisee should exit the system.

Attention is often focused on recruitment, sourcing and selection of new franchise units that will grow the network. After all most of us find the business of growth more exciting than the prickly issue of franchisee departure.

However, the natural “attrition” or departure of franchisees is a constant in all franchise systems. For a wide variety of reasons you can always be sure that at some time a franchisee is going to leave your system. So what happens next?


The Common Approach… “It’ll Be Alright”

Many franchisors pretty much ignore the problem, by putting their head in the sand and hoping it will all work out. Under this approach you leave the departing franchisee, often working in conjunction with a business broker, to find your new franchisee. You might provide them a list of parties that have expressed interest in obtaining a franchise, and you might have a final interview as part of your vetting process. But this is a high risk strategy.

A departing franchisee isn’t the best placed to be finding your next high performing franchisee. The reality is that you and your departing franchisee do not have an alignment of interests during this process. They will be focused on maximising the value they receive from the transaction i.e. the sale of their business, while your best interests are served by ensuring the business is sold to the best candidate that will generate consistently high performance. The best candidate for you, will not necessarily be the one that has the most money and is willing to pay the departing franchisee the highest multiple.


The Preferred Approach

So how should you manage the process to ensure a happy ending and a more successful beginning with the new franchisee?
Firstly, it’s about having standards and a process.

Secondly, it’s about setting and managing expectations.

Finally, it’s about implementation and management.

Let’s have a look at them one at a time.

Firstly, set your minimum standards, define the standards clearly and state how they will be measured. While you don’t need to be very detailed or 100% transparent, it’s wise to include more than a simple statement like “must meet current recruitment standards”. For example what do you expect of them financially or what previous experience is required?  Next ensure you have a documented process for succession. And that your involvement as the franchisor begins at the start of that process. At the very least you should be made aware that the franchisee is considering departing, this way you get involved early and follow the important next step…

Many franchisee departures become difficult because the departing franchisee’s expectations weren’t managed early enough. Get involved early, communicate your minimum standards, and inform them of the process. The earlier the better. Also inform them about realistic time frames, many franchisees have unrealistic expectations of how rapidly the process can be completed, this turns ugly when they perceive you’re hindering their exit from the business by requiring minimum standards and due process.

Lastly, make sure you follow your process and implement your standards. I’m constantly surprised by the number of organisations that develop great processes and then don’t follow them. Sure, you can cut the occasional corner, or speed it up, but always ensure you meet your standards, as they’re there to protect you.


The Best Approach

Of course the easiest way to set standards and measure them objectively is to make mandatory the use of The FranchiZe Profile for all new franchisees. With clear scores across the seven critical dimensions to franchisee success, you set your own cut off points or performance hurdles. You will have an objective measure, supporting your decision with years of independent third party research.  Immediately your discussions with the departing franchisee just became a whole lot easier.