Selling a Franchise

No matter how happy or successful a franchise may be, there comes a time when a decision is made to sell the franchise. There are many reasons why people decide to sell their franchise. Some may want to retire, are seriously ill, are getting a divorce or perhaps just want to relocate. No matter what the reason, however, if you are an existing franchisee who wishes to sell your business, your franchise agreement may require the purchaser of the business to gain the prior approval of the franchisor. In most cases, the purchaser will be subject to the same selection criteria for the system as you did.

Here are a few tips on how to sell your franchise:

Price Your Business Right

Once you have a firm understanding of how franchises in your system and industry are priced, you will have a better probability of making a sale. When the profits are low, your price will be lower. Yet, if profits are significant, you should see the rewards. Today, it seems that service businesses typically sell for 2-3 times the annual “reconstructed cash flow.”

Do Not Hide Cash

With today’s heavy tax liabilities, many small business owners are tempted to rather pocket the cash and take the risks instead. Yet, this is rather a dangerous policy because of the tax penalties that can be due if an IRS or state audit discovers and exposes the problem. In addition, keep in mind that the sales price is usually based on provable revenues and profits. Since there will be no record of your cash transactions, no buyer will believe your claims that these receipts really exist.

Notify Your Franchisor

Always notify franchisors of your intentions. Franchisors provide a substantial amount of assistance in helping franchisees resell their units. Your buyer will need to meet certain standards and criteria in order to be accepted by the franchisor. Their criteria will help you know which buyer would best suit your franchise.

Know Where You are Going

We often find that many franchise owners decide to sell their franchise after a bad month. Some may quickly arrange a sale and only then realize that they do not actually have a plan for the rest of their lives. Therefore, be certain that you have a plan for the future before you set out to sell your franchise. Be certain that this is what you want to do.

Have Reasonable Expectations

There are many factors that have an impact on how long it will take to sell your franchise. For instance, your advertising campaign; size of your marketplace; the local and national economies; the reputation of your franchise system; how much your unit earns and how you have priced your unit. Lowering the price or down payment in comparison to other offers in your marketplace, will speed your sale.

Know How and Where to Advertise

Finding the right buyer can be a big challenge. Yet, knowing where and how to advertise is critical to getting buyers interested in your offer. Why not consider local businessmen in influential positions who may be able to guide prospective buyers to you. These can be bankers, accountants, attorneys, Chamber of Commerce executives, and even Trade Association officers. They will know people who are searching for a franchise business similar to yours.

Demand Confidentiality

It is rather important that employees, customers and vendors are not made aware of your interest in selling the franchise. They can know only when the transaction is imminent. When people find out you are selling, they immediately assume that the franchise is on the brink of failure and employees will have to look for a job elsewhere. Customers may change their commitment and vendors may tighten their credit standards. Therefore, it is very important that you impress upon your potential buyers the need to maintain confidentiality.

Solicit an Offer

When selling the franchise, both you and the buyer need to structure a written offer to purchase your franchise detailing the points that are important to the parties, including the price and terms.

Negotiate to a Contract

If the buyer has another opinion on the value of your business, you will have to negotiate to get an agreement. This final contract will be used by the closing attorney to develop the final sales documents.

Assist in the Transition

With most franchises, only trained individuals can run the franchise. Therefore, you should plan to run the business while the new owner attends the required headquarters training.

If you are reasonable in your expectations, you should be able to arrange a sale that meets your needs.

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