Selling a franchised business is slightly different than selling an independently owned business. When selling a franchised business there are key things you need to know in regards to preparation, approval, right of first refusal, fees and training. Details of what is allowed by the franchisor and what isn’t are located in the franchise agreement. I recommend reading your agreement thoroughly. Work with a business broker to help navigate the sales process and consult with the franchisor upfront about your intentions to sell. Following these recommendations will make you aware of potential challenges you could face throughout the sales process. It will also help you better assess potential buyers and ensure that you meet the obligations set forth in your agreement with the franchisor. If you are considering buying a franchise you should look into the details of the business before purchasing. That will help you choose a franchise with reasonable terms as well as let you know what you are in for when it is time for you to sell.
The key to a smooth sale of a business, be it an independent business or a franchise, is preparation. Let the franchisor know you are planning to sell and make the necessary preparations. Some franchisors will provide you with a checklist or guide which is useful in navigating the sales process. Also, working with a business broker is extremely useful as they will know how to get you through the sales process beyond what the franchisor provides.
Concerning approval, some franchisors will require that they approve a buyer. They will want to review a potential buyer’s financial status as well as their skill set and qualifications to ensure they are capable of successfully running the business and that their brand is in good hands.
A business broker will assist in the screening of potential buyers. They are experienced in the buying and selling of franchised businesses and know what to look for.
Another key thing to be aware of is the “right of first refusal” which means the franchisor can buy your business even after you have accepted an offer from a buyer. The “right of first refusal” clause can discourage potential buyers because they can go through the whole process of getting financing, doing their due diligence and making an offer, only to have the business pulled out from underneath them when the franchisor decides to buy it themselves. If this clause is built into your agreement, ask your franchisor if they intend to exercise their right to act on it.
In regard to fees, a new owner may be subject to a transfer fee. The fee is typically less than what the franchisee paid to purchase the business originally. However, potential buyers will want to know what the fee is.
A benefit to purchasing a franchise is that they usually come with tested standardized operation methods and procedures. When it comes to training, it is becoming increasingly common to have the exiting owner train the new buyer and that may also be expected by the franchisor. Check with the franchisor to know what is expected of you.
In summary, knowing what is in your franchise agreement and what is expected of you by the franchisor concerning preparation, approval, right of first refusal, fees and training will be important when selling your franchised business. Make the franchisor aware of your intentions to sell and work with a business broker to assist you throughout the entire sales process.
About The Author: Peter Siegel, MBA is the Founder & President of BizBen.com, a website for businesses for sale, businesses wanted to buy, resources, & articles, and the BizBenNetwork Online Community. He advises and consults with business buyers, business sellers/owners, brokers, agents, investors, & advisors on a daily basis. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a purchase of) small to mid-sized businesses.