The “Franchise Flip”

Newsstands in the franchising industry are rife with conversation about the “franchise flip” strategy. Franchise flipping involves franchisees who purchase, build, and then sell their locations. The process has become a growing trend as a wealth management strategy in the franchise world, but what does it mean to franchisors and franchisees alike? Join us as we walk through this interesting entrepreneurial adventure.

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Transcript

Mark Vandegrift
Welcome to the latest episode of FranSimple, the podcast designed to make the concepts of franchising simple. I'm your host, Mark Vandegrift. And with me is the president of FranSource and all time franchising expert, Steve Vandegrift. Steve, welcome.

Steve Vandegrift 
Well thanks Mark, it's always great to be here.

Mark Vandegrift 
Good. We have a fun topic today. You know, I watch a lot of home shows on flipping homes, right? Well, there's a term getting a lot of attention in the franchising world now called the franchise flip. So I think we're hearing that it's like the next big wealth strategy, which, is that like the next get rich quick scheme?

Steve Vandegrift 
Definitely not.

Mark Vandegrift 
It's probably overhyped, but tell everyone what is it and why are so many people talking about it.

Steve Vandegrift 
Well, at the basic level, the franchise flip is really simple. You build or acquire a franchise, you improve the performance, and then you sell it for a profit. What's really different now, and it's like multi-unit franchising, which on our previous podcast we discussed, that has been growing rapidly over the last 20 years. Probably upwards of 50 % plus of franchise units are owned by multi-unit operators. So what's different now with the franchise flip is it's all about intentionality, I like to say. People aren't just buying franchises to own them long term. They're thinking more like investors from the from the very beginning.

Mark Vandegrift 
Okay, well why now? What's changed that's making this strategy more popular?

Steve Vandegrift 
Well, a big part of it is the scale. Franchising has really matured into a massive asset class. And so just a little statistics, according to the IFA's 2026 Franchising Economic Outlook Report, the number of franchise units will grow from approximately 833,000 to 845,000, which is an increase of 1.5%. And then the output has also increased, it's expected to rise from $907 billion to $921 billion, an increase of 1.6%. And then the total franchise GDP is expected to grow from 1.8 % or by 1.8 % from $550 billion, roughly, to $558 billion. So when an industry gets that big, you naturally see more buying, you see more selling and repositioning of assets similar to like real estate.

Mark Vandegrift 
So this isn't just hype, there's real activity behind it.

Steve Vandegrift 
Oh exactly. You know, again, the number of franchise units that change hands every year is increasing, and it's certainly growing in 2026. So that's a clear signal. Franchising isn't just about starting a business anymore. It's about scaling.

Mark Vandegrift 
Okay, so, you know, I get to watch these TV shows on flipping houses. Walk us through what a franchise flip looks like.

Steve Vandegrift 
Well, I'd like to think of it as really a three-step play. Number one, you acquire or build the unit. Number two, you improve the operations, the staffing, the marketing, the margins, and then you sell it at a higher valuation. And some people are buying underperforming units and simply fixing the issues. Others are building new locations, operating them, and then of course selling them once they're profitable.

Mark Vandegrift 
So, okay, my understanding of a franchise, you know, bear with me here, is that it's an operational system that should be optimized, right, when you buy it. So, what are, when you say there are issues that need fixed, what does that look like? Is it just the franchisees not following the system so they buy it because it's at a low point and then the franchisee comes in and follows the system all of a sudden?

Steve Vandegrift 
Exactly. I mean, at the end of the day, it's less about distressed assets and more about creating enterprise value quickly by improving the operation and it's usually the franchise operator's issue, the original operator. And the flipper is coming in to fix that and then obviously scale and sell.

Mark Vandegrift
Okay, so it's not something necessarily that's broken. It's not like buying a crappy house.

Steve Vandegrift 
No. 

Mark Vandegrift
It's building something, then.

Steve Vandegrift
That's exactly right. In other words, the system works. The operator isn't following the system.

Mark Vandegrift 
Okay. So it's fueling the trend. Why are more people doing this?

Steve Vandegrift
Well, excuse me, there's four big drivers, I think. The first is low risk. They are stepping into a proven system of operation. The operator, existing operator may not have done it properly, but they know that the flipper knows it's working right. And then of course, there's the buyer demand. A lot of people do prefer buying cash flowing franchises instead of starting a franchise from scratch. They don't want to go through site selection, construction, et cetera. And a third is naturally capital. When we're in an uncertain market, investors like to have a predictable asset. And this is certainly one of them in a proven system of operation. And then finally, there's just more sophisticated owners. Multi-unit operators and private equity groups are treating franchises like investment portfolios now. Not just jobs, not just businesses.

Mark Vandegrift 
So you're telling me I should probably be on the lookout for a new TV series called the Franchise Flip.

Steve Vandegrift 
That's right. It would be a great series without a doubt. We'll host it, Mark.

Mark Vandegrift 
Okay. Well, I mean, it's starting to look like that. It looks like, you know, I don't know some of the food cooking shows, but they go into a restaurant, they fix the issues. You know, what's the chef's name that does that? But he goes in, fix a restaurant, you know, just like the real estate. So you're kind of saying this is looking more like real estate or even private equity because they're doing that a lot. Is that right?

Steve Vandegrift 
Exactly, exactly. It's ultimately becoming more transactional, more strategic, and of course, more data driven.

Mark Vandegrift 
Okay, so if someone's thinking about this strategy, I already know people locally that are trying to do the flip thing on real estate and housing and become the next big chip in Joanna Gaines. So this is a little bit more new than that. If someone's looking into this strategy, where do they look? It's not like you can go to real estate magazine and go, I'm going to buy that house. It's in foreclosure.

Steve Vandegrift 
Right. Well, there's really three big categories, I think. The first is home services. So you think HVAC, plumbing, restoration, cleaning. These are needs based and recession resistant. And the U.S. home service market is massive, but it's highly fragmented, which creates a lot of opportunities to improve operations, scale, and then exit. Health and wellness would be the second category. Think fitness, recovery, longevity. This category keeps growing and we read about it every day because people are prioritizing their health and how they feel. Boutique fitness alone has already seen steady post pandemic recovery and they have strong unit economics in the right models. Obviously that's part of it. And then finally, I would say B2B services. So staffing, commercial cleaning, business services. These franchises typically have lower overhead costs, recurring revenue and are they typically are easier to scale across multiple units for those reasons.

Mark Vandegrift 
So do I go to franchiseflip.com or where do I find these things?

Steve Vandegrift 
Yeah, yeah, we better snag that now.

Mark Vandegrift 
Okay, sounds good. Well, what about restaurants? I don't think you mentioned those.

Steve Vandegrift 
Well, restaurants can certainly work, but it's a little tougher. You really need simple operations, strong margins, and ideally, off-premises models where food's prepared on-site but consumed elsewhere, which is really all about prioritizing convenience over in-house dining. We like to say in the restaurant industry, complexity kills a lot of food concepts.

Mark Vandegrift 
Do you see that's because of staffing or is it just the complexity of the operations?

Steve Vandegrift 
It can be the complexity. So, as an example, smaller menus. Let's not have 25 pages of menu items. Now we're dealing with increased food waste costs and things like that. You want efficient operating systems. Some restaurants are very heavy when it comes to the operation itself, and it just requires a lot of expertise. So the simpler the restaurant, the better the opportunity.

Mark Vandegrift 
Okay, so you're telling our listeners if they're looking into this, look at category first, right? And then brand second.

Steve Vandegrift 
Exactly. The model definitely matters more than just the logo.

Mark Vandegrift 
Okay. So give us an example. What does it look like in the real world? If, if we were to go to franchiseflip.com and I found an opportunity, what does this look like? What's the next step?

Steve Vandegrift 
Well, a good example is the home services industry. So restoration brands like Serve Pro or similar concepts. There's operators who come in, they buy an underperforming unit or units as the case may be. They professionalize the sales process, they tighten the operations, and they grow revenue significantly, sometimes doubling and even tripling over a few year period. Once that happens, those businesses become very attractive to larger multi-unit operators or private equity groups, and they typically sell at a premium price. So there's one real world example.

Mark Vandegrift 
So they're not just fixing, they're scaling and then exiting.

Steve Vandegrift 
That's right, it's really value creation, not just a turnaround.

Mark Vandegrift 
Okay, which is what private equity is basically trying to do then.

Steve Vandegrift 
Exactly. 

Mark Vandegrift
So it is that model then.

Steve Vandegrift 
Yes.

Mark Vandegrift
Okay, so what's the appeal here? Why do people love this idea?

Steve Vandegrift 
Well, really, there's three things. The first is speed. You can create value faster than long term ownership. The second is focus. It forces operational discipline and consistency in the operation itself. And then the final one is flexibility. You can redeploy capital instead of being tied to one business. And this really fits, I believe, how modern entrepreneurs think. Build, scale, exit, repeat.

Mark Vandegrift 
Okay. What's the relationship look like with the franchisor, do you see it creates any kind of tension? Like let's say this franchisee over here, I'm buying it, right? And I enter the picture and the franchisor is looking at it as, they're going to try to fix me as well and tell me where operational challenges come. What's going on there? What do you think the franchisor's mind is when they see this happen?

Steve Vandegrift 
Well, believe it or not, some are really leaning into it. There are brands now, especially in the home services and fitness industries, that are building literally resale pipelines and even helping facilitate the transactions. They know that strong resale activity, it keeps the units open, it attracts better operators, and it supports higher overall brand valuation. But conversely, some franchisors are careful. They don't want a system full of short-term operators. You don't want your entire franchise network to be flippers. But there's a place for it in most systems.

Mark Vandegrift 
So they meet with a poor performing franchisee, go, hey Bob, you're not cutting it. I got someone that's interested in selling or buying the business. Let's make this happen. Is that it? Okay.

Steve Vandegrift 
That's right. That's right. That's right. It's for the benefit of both that existing operator and the system itself, the brand itself.

Mark Vandegrift 
Okay, so going back to the franchise flip and the franchisee, let's balance it out because I always want to know what's the risk, what can go wrong here.

Steve Vandegrift 
Well, a lot, depending on the operator. First of all, you need strong execution. The buyers pay for results, not potential. And the timing really matters because market conditions impact, obviously, the valuations. And then finally, it takes capital, as we've discussed. You have to invest typically before you exit. And honestly, not every brand is flippable. Some markets are saturated. Some systems just don't command strong resale values.

Mark Vandegrift 
Well, I assume these franchise flippers know what to look for. I mean, it's like going into a house and saying, this is just not recoverable or I see the bones are good, but the aesthetic is awful. So that's part of their perspective walking into a franchisee.

Steve Vandegrift
That's right, and obviously flippers are doing a tremendous amount of due diligence.

Mark Vandegrift 
Okay, so this isn't passive investing. I mean, you don't just lay money on the table and go, okay, I hope this works out. Give us some insight on that.

Steve Vandegrift 
Yeah, it's definitely not passive investing. This is active, operationally driven investing is what we like to say.

Mark Vandegrift 
So do you think this is something people should be pursuing?

Steve Vandegrift 
Well, they should understand it, first of all. You can't go blindly into this, ultimately. And it's certainly not for everyone. So at the end of the day, the people that are winning by flipping, they're picking the right category, they're executing at a high level, and they're building a business that someone actually wants to buy. That's the difference between speculation and strategy.

Mark Vandegrift 
Okay, so I'm evaluating this. It seems like a good way to go. What makes a franchise more flippable than another?

Steve Vandegrift 
Well, I believe there's really three key things. The first is strong unit economics. It has to have those strong unit economics. Then there's multi-unit scalability. Can they scale across multiple units? And finally, being confident. And obviously, you can't always be 100 % confident, but you need to be confident that there's a clear buyer pool on the back end when you're flipping. And if those three exist, you have a good opportunity.

Mark Vandegrift 
So you think this is a trend or do you think it's here to stay?

Steve Vandegrift 
Oh it's here to stay. But again, it's not for everyone. And it's a strategy. And like any strategy, it works when it's aligned with the right operator, the right brand, and obviously in the right market.

Mark Vandegrift 
I guess a logistics question for you before we kind of wrap things up here. Does a franchisor have to approve the acquisition of one of its franchisees?

Steve Vandegrift 
That's a great question and the answer is yes. A franchisee can elect to offer their business for sale. The franchisor through the franchise agreement has a right to obviously do their due diligence and evaluation of that buyer. And if they don't feel comfortable that they're going to be able to operate properly, they can say no. And franchisors also have the first right of refusal. So typically if a franchisee receives a bonafide offer, the franchisee has some period of time to either say yes you can sell it or no we're going to purchase it at that price.

Mark Vandegrift
So you always talk about the criticality of the sales process. Does a franchise flipper, so an investor and existing franchisee, do they have to go through the same process that a new franchisee would go through?

Steve Vandegrift 
To some extent. Now, you're probably going to skip maybe a step or two because they're not a new franchisees, never owned a business, et cetera. But yes, you're certainly going to require them to complete an application. You certainly, if you have discovery days, which we highly recommend, where prospective franchisees come to meet the owners, the management team, get a taste of the day in the life of a franchisee. Those are all things that, yes, that is part and parcel to even flippers. You really want to evaluate them just like you evaluate any prospective franchisee? Great question.

Mark Vandegrift
And when they're meeting with them, what is the confidentiality in terms of talking about the franchise location or locations that they're looking to acquire? Can they, can the franchisor share everything like Bob did this and Bob does this and Bob doesn't do this well and Bob doesn't do that well? it, I assume full transparency is allowed or is there confidentiality in some regard?

Steve Vandegrift 
Well, it depends on the deal, Mark, honestly. Some will require non-disclosures, etc. relative to that acquisition. Ultimately, the flipper is responsible for doing their own due diligence. So, I don't particularly see where franchisors are, quote-unquote, throwing that franchisee under the bus. But again, if this is truly a qualified flipper, they know the due diligence that they have to do.

Mark Vandegrift 
In that situation where you said franchisors are actually developing a funnel for this, can a franchise flipper approach them independently of that franchisee or do they have to notify the franchisee that there's somebody looking at them before they have the conversation?

Steve Vandegrift 
Well, typically what's going to happen is that Flipper is probably going to reach out to the franchisor. Hey, do you have anyone looking to sell their franchise or franchises? Do you have any underperforming franchises that you'd love to have a new operator for? So really the first step is typically going through the franchisor. Franchisor then would initially coordinate with that franchise operator, see if they have any interests. Unless they're in major violation of their agreement, the franchisor really does not have cause to remove that as a franchisee. But the franchise owner themselves, the existing owner, may say yes, I'd love to have the opportunity to sell.

Mark Vandegrift 
Okay, good. That seems like a pretty complete coverage of the franchise flip. I'm sure there's a lot of nathairs to talk about, but as always, give us that one single takeaway that you'd like to share with our listeners today about this particular trend.

Steve Vandegrift 
Well, I think it's important that the listeners understand that franchising isn't necessarily just about owning a business anymore. It's about building an asset. And the people who understand that subtle shift, they're going to have a big advantage when we're talking about franchise flipping.

Mark Vandegrift 
Okay. I'm going to extend the conversation a little bit because we do know of an existing franchise that is flipping right now, in essence, and though it's a franchisor flipping to a franchisee. What kind of financial incentives can be provided or additional investment that is made by the existing entity to make the sale more attractive?

Steve Vandegrift 
Okay, now there's a slightly different situation. The franchisor, and we have a lot of clients, they operate multiple locations. Once we launch their franchise, they're actively interested in maybe selling a few of those locations. And sometimes that does come in one particular current case that we have. The franchisor was basically going to invest in that location. It was one of their first locations. They wanted to get more equipment in there. They wanted to make it flow a little bit better. They felt that they could actually do higher levels of revenue. And so ultimately they elected, they basically shared with the potential buyer that they were willing to invest X amount of dollars to that cause to really allow that franchisee to hit the ground running. So that work is going to be done literally as part of the transition from a franchisor owned, or we like to say a corporate affiliated franchise location to an independent franchisee.

Mark Vandegrift 
Okay, so that wouldn't qualify under the franchise flip trend that you're seeing.

Steve Vandegrift 
No, it's more the franchisor selling off units. And that's occurred since the beginning of franchising and it's going to continue. But yeah, franchise flip is an outside individual coming in with the idea they're going to basically take over underperforming units, they're going to fix the operation, and then they're going to sell it. They're going to exit.

Mark Vandegrift 
Very good. Well, let's wrap up today's episode of FranSimple, where we talked about franchise flipping. What a thing I would never, a term I would have never thought of. So as soon as we're off here, make sure you go look for that domain. We want to see if we can get it. 

Steve Vandegrift 
You got it. That's the first thing I'm going to do, Mark.

Mark Vandegrift 
Well, thanks for joining us, Steve. And as always, thank you to our listeners for joining us. Please like, share, subscribe, and we really hope that you're enjoying our initial FranSimple podcast. We have our first few here in the bag. So we hope you'll join us again as we seek to make the concept of Franchising Simple. And until next episode, may your business expand through the power of franchising.