Despite the advantages of leveraging a known brand and being provided with a proven blueprint for business success, there may come a time when you are ready to sell your franchise. When this time comes, it is important to understand that the process can be a bit more involved than the sale of a general business. To assist in this regard, the following breakdown looks at 5 of the most pertinent considerations to keep in mind when selling your franchise.
1. Know the Restrictions
When selling a franchise, the franchisor has a rather extensive set of restrictions that will preclude the sale in some situations. For example, the buyer must provide a certain amount (usually at least 20%) of the purchase price in cash. Considering that many franchises sell well into the millions, with some higher-end franchises running into the eight figures, this is not an insignificant barrier. In addition, many franchisors require that buyers complete an extensive training period prior to taking over a store. Some other common restrictions that will precede a sale include:
- Settlement of all franchise fees. These are not included as part of the purchase price of the business and are likely to be more than $10,000.
- Requirement that all defaults be settled by the seller prior to the sale.
- Signing of waivers against future litigation and non-compete agreements so that the former franchisee does not vulture business.
2. Have All Documentation Readily Available
Even though the business is part of a franchise, each individual location reflects the leadership and decision making of the branch owner. Therefore, you can impress buyers with the quality of your operation by having all pertinent business documentation at their disposal. Some key items include:
- Statement of sales and adjusted profit history
- Three years of business accounts
- Details of all equipment owned and leased
- Details of all contractual relationships
- Tax documents from the previous three years
- Balance sheet, income statement, and statement of cash flow
3. Get a Professional Valuation
Although there are some special considerations for how to sell a franchise, some of the steps will be very similar to those used for selling a general business. One of these is to receive a professional valuation of the business.
Franchise locations are not clones of one another, with each store carrying specific risks and opportunities. As such, it is a good idea to work with a business broker to help arrive at a figure for what your location is worth. The business broker will look at many of the financial documents listed above and use EBITDA, capital assets, goodwill, and future growth opportunities to provide a numerical value for what your business is worth. From there, you can leverage any associations with the brand name to try and get a premium price for your business.
4. Establish a Humanitarian Connection with Buyers
It is very important for modern professionals and consumers to feel like their work and hard-earned dollars are supporting a noble cause. In fact, 86% of consumers said they will not purchase from a store that gets bad reviews. Similarly, 47% of job seekers said that they will not consider a company with a bad culture.
However, it can be a bit difficult to get your business on the right ground when the brand is going through a crisis. In the age of instant media, one bad experience at a location hundreds of miles away can make buyers hesitant to partner with your brand.
Therefore, it is essential that you preempt any of these concerns and connect with buyers on a humanitarian level. Show them how your specific location makes unique efforts to attract, retain, and take care of the talent in your area. Use videos, presentations, and robust social media interactions to demonstrate how your store is making a difference in the local community.
5. Leverage the Experience of the Franchisor
While it may seem like the franchisor is the “bad guy” who takes all of the fun out of being a business owner, it is important to understand that the franchisor has a vested interest in seeing each franchise location succeed. This includes the buying and selling of its stores.
Therefore, don’t be afraid to reach out to the franchisor for advice on how to sell your franchise. They have the experience and have seen what does and does not work when it comes to selling their stores. In addition, for every buyer that they strike from your pool of prospects, they likely have a qualified candidate to take his or her place–possibly an existing franchisee who is looking to expand operations into new territories.
Consider All Options Before Selling a Franchise
Selling a franchise is usually a more involved process than selling a private business. Therefore, it is important to know the restrictions, have all documentation readily available, receive a professional valuation from a business broker, establish a humanitarian connection with buyers, and leverage the experience of the franchisor to help make selling your franchise as smooth and profitable as possible.