How To Sell My Franchise Business
Selling a franchise is a little different to selling an ordinary business. As a franchisee wishing to sell your franchised business, you may need consent from the Master Franchise (The Franchisor).
Sometimes there are also clauses in your Franchise agreement that stipulate the conditions of you selling. So, make sure you check your franchise agreement for any conditions that may affect you when you are ready to sell your business.
Possible conditions for a franchise seller:
A franchisor may have an established process of selling an individual franchise business within the franchise network. Some conditions may be:
- Consent by the Franchisor to sell your franchise is usually required prior to advertising your franchise business for sale. This is normally required in writing.
- The franchisor may have first ‘right of refusal’ for your potential buyer, so it is recommended to liaise with your franchisor as to their requirements for a suitable buyer.
- Some Master Franchisors may offer to advertise your franchise on their website but it is still worth your while advertising independently. You may need permission for this.
- Some Franchisors may have a condition stipulating they have first right to buy-back your business.
- Some Franchisors stipulate that they are the only ones that can market your franchise for sale.
As you can see, it is especially important to check the agreement you have between yourself and the Master Franchisor.
List all of your assets
Just like any other business sale there is preparation required. As a franchise seller, you should prepare a disclosure document to the potential buyer of your franchise. A disclosure document provides key information about the franchise system along with current information about the running of the franchise. Your master franchise may already have one, or you may have received one when you were buying your franchise. If your franchise pays royalties to the franchisor, this should be included in your disclosure document.
Other considerations when selling your Franchise.
Check your current leasing agreement (if you are renting the premises). Look for any clauses the landlord has outlined when transferring the lease to someone else. Again, the landlord may have ‘Right of Refusal’ of your buyer. This is normally if the prospective buyer is not financially sound, therefore is risky for the Landlord. Never sell your business without transferring your lease, otherwise you are still legally bound to pay the lease! Often it is best that a new lease is negotiated between the buyer and your landlord.
Profit and Loss
Make sure all your financials are up to date (usually by the end of the previous financial year is acceptable). Many franchises have in-house accounting systems, so financials are easily accessible.
Check to see if there are any ongoing obligations for you as the ex-franchisee, even after sale. There is often a clause that you must help the new buyer for a period of time to ensure a smooth transition.
Other handy tips to sell a business can be found here.
Is it hard to sell a franchise without a broker?
No it’s not. Remember, you have owned and operated your franchise for a while now and you know your business inside and out, certainly better than any Broker would. If you have done all the above, then you are well on your way and ready to market your franchise for sale. Until you start advertising your business for sale, then you won’t know who is interested.
Getting the right advertising exposure to attract the buyers to sell your franchise is very important. A broker would use major sites to list your business for sale, but you can too. The biggest difference is that you have control over who is looking at buying your business and when you sell, you won’t be paying any commissions whatsoever. The benefits of selling privately far outweighs selling those through a broker. Of course, Business Brokers may tell you differently. You have worked a long time in your business and brokers often charge very hefty commissions, like 10%. 10% of the whole business sale price! That’s 10% of your equipment, 10% of your good name and 10% out of your pocket. You may have already purchased your business previously, or even paid for a new set-up. So be well informed how much it is really costing you to use a broker.
Example: Let’s say your purchased your franchise for $230,000 a few years ago. During the running of your business you have replaced equipment items (value $60,000). You have also increased the revenue. Today your business may be worth $400,000. So, if a broker is charging 10%, then you will need to pay them $40,000 + advertising costs (lets round it to $45k). Your real profit from the sale is the sale price ($400k) less your original purchase price ($230k) and your extra expenditure ($60k) – your profit is then $110k. So now work out the brokers fee of $45,000 as a percentage of your profit – this would be around 44% of YOUR profit going to the broker.
YOU are the one who deserves this, not the broker.
Be aware, 10% does not mean 10% – it is more like 44%.
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