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Selling Your Franchise Business

If you’re like most franchisees owners there will be a time when you decide to sell your franchise. This decision will be based upon one or more of the following reasons:

1. You suffer “burnout.” The average life span of a small business is four years.
2. Operating the franchise is no longer enjoyable.
3. The value of the business is at a high level.
4. Competitive factors threaten your sales.
5. There are extenuating circumstances, such as a personal or family illness.

Unlike independent business owners, franchisees have restrictions regarding the sale of their franchise. Because the franchise can only be sold as a franchise can limit potential buyers. This makes it important that your franchise is attractive to qualified buyers.

The Majority of Franchisors Don’t Assist in the Franchisee Sales Process
Since franchisors retain strong contractual rights regarding the sale and assignment of a franchise, most franchisors take an “arms length” approach, when it comes to franchise re-sales. This lowers the risk that the franchisor will face claims of interfering with, or inhibiting the right of a franchisee to sell their business. Without an organized franchise resale program most franchisees must shoulder the responsibility to find a qualified buyer and complete the transaction. When you’re ready to sell be sure to notify your franchisor since they will be involved in various stages of the sales process. They may also have a franchise prospect in their database that expressed an interest in your territory.

Finding Buyers for your Franchise
If you decide to engage the services of a business broker expect to pay a commission of 8 to 12% of the sales prices. Most reputable business brokers will also have a minimum transaction fee of a least $10,000. Some franchisors will provide the name of business broker(s) to their franchisees. However, as a franchisee looking to sell, it will be your responsibility to find and contract with a business broker.

If you decide to find buyers, begin by listing your franchise on several Internet sites.

Use These Items as a Checklist before Listing your Franchise
€ Confirm if there will be a change in the royalty, advertising fees or other important items once the sale is completed. Since franchisors usually require a buyer to execute the current form of franchise agreement, there may be new terms that can negatively impact the future profitability and sales price of the franchise.

€ Advise and utilize the services of your accountant and attorney. You’ll need their expertise in valuing the business and dealing with any potential legal issues.

€ If location is a key component of your franchise the terms of your lease can be a positive or negative factor depending upon the length and rent. Obviously a long term lease in a good location at a reasonable rent is a plus, while the converse can be a negative. Identify options with your landlord.

€ Changes in the competitive nature of the franchise can have an impact. Be prepared to answer questions regarding competition.

€ Will the franchisor require the new franchisee to remodel the premises? Some franchise concepts, especially in the food segment will require the buyer to bring the premises up to current standards. Once again identify the possible requirements placed upon a new franchisee.

€ Be in “good-standing” with your franchisor. A franchisee in default of their franchise agreement that attempts to sell their franchise without an understanding from the franchisor could get into a “sticky” situation. If necessary, obtain advice and assistance from your franchise attorney.

€ Have good financial records that are current and accurate. The majority of small business sales fail because the financial statements fail to confirm owner income, operating expenses and future earnings potential.

€ Be realistic and honest regarding the value of your franchise business. Most franchise owners tend to err on the side of setting a higher sales price than their financials support. Also, don’t rule out financing part of the sale price. If you do provide financing be sure your attorney includes protection in your sales agreement.

Selling your franchise is an important decision and requires careful preparation before listing for sale. Make sure you obtain the advice of professionals before and during this important activity.