There comes a time in most business owner’s lives that they consider selling their business. This holds true for franchise owners as well. This may be planned far in advance, even as part of an exit strategy when the franchise was purchased or may come up suddenly due to illness or relocation. Regardless of the reason, there are a few important keys to selling your franchise business. Whenever possible, the owner needs to maximize the sale opportunity by choosing a time when the business is doing well and the market is good for buyers and sellers.
Selling a franchise business can be unique and have a few important things to consider that are different from the sale of an owned business.
1. Know the rules and restrictions on the sale placed by the franchisor. The franchisor will almost always need to be involved in the sale in order to ensure that the new franchisee meets their strict requirements and will represent the franchise appropriately. Most franchisors have first right of refusal meaning that the franchisor can buy the franchise back on the same terms offered any potential buyer.
2. Know what the business is worth. Have an accurate assessment of the value of your franchise based on the market. To do this, there must be accurate books and accounting. The business must be current in all respects, not just on the books, but also up to current industry and franchise standards. No one will want to buy a franchise that requires extra money up front to update it or otherwise meet requirements.
3. Know how you expect the buyer to finance. Some sellers provide financing to the buyer, others expect the buyer to arrange their own financing. Plan the subtleties in advance such as how the franchise transfer fee will be covered. If upgrades are necessary to finalize the sale, plan how to handle those.
Once the decision is made to sell a franchise that is operating, the franchisee has an obligation to keep operating the business in the same manner as the business has always been run. If the seller has expectations of the new franchisee, it is important to ensure that the current operations meet those expectations. Selling a franchise is sometimes a lengthy process. Having the support of an accountant, a broker and someone who can assist with financing eases the burden on the seller. IRH Capital is here to help with financing on sales and resales.