When looking at how to sell a franchise, franchisees may be overwhelmed by the list of restrictions, considerations, and best practices for transferring their franchise to a new owner. However, while selling a franchise can be a bit more complicated than selling a general business, the process is perfectly manageable with the right planning and preparation. To help in this regard, the following breakdown looks at 5 key considerations before selling a franchise.
Table of Contents
1. Contact a Business Broker
A business broker is an invaluable resource for franchisees looking to sell their business. Not only will business brokers be well-versed in all of the particulars of conducting business transfers, but they will also have experience in the myriad franchise restrictions that may interfere with a sale. Some of these restrictions that are unique to franchise sales include:
- Buyers must meet all requirements set forth by the franchisor, such as sufficient cash funding and ability to commit to franchise training
- Payment of any and all franchise or transfer fees
- The franchisor must agree to the financial terms of any sale
- The seller must eliminate all defaults under the franchise agreement prior to sale
- The seller must sign a general release, waiving the right to file any type of lawsuit against the franchisor
All in all, there is a more extensive checklist that must be satisfied prior to the sale of a franchise than for a general business. A business broker can help ensure that you do not waste any time on a potential buyer if it is clear that any item on this checklist cannot be satisfied.
2. Don’t Be Afraid to Work with the Franchisor
Based on the previous heading, it may sound like the franchisor is the enemy when it comes to selling your franchise business. And while the franchisor does restrict the autonomy that most business owners would like to have when transferring their store to a new owner, the franchisor can also be an invaluable resource during the sale process.
While the sale of the franchise may be new to you, the franchisor has likely seen dozens (if not more) stores change hands during the lifetime of the company. They have seen what works and what doesn’t when it comes to selling their business. In addition, the franchisor will likely have a list of existing franchisees looking to tap into new markets, so they can help you cast a wider net for attracting qualified buyers.
At the end of the day, the franchisor wants all of its agents to be successful. Whether these agents be buyers or sellers of branch locations, the franchise succeeds when both parties succeed. Therefore, don’t be afraid to reach out to the franchisor for advice, encouragement, or leads–they will likely be more than happy to point you in the right direction.
3. Connect on a Humanitarian Level
Business owners selling a franchise must understand that buyers already know about the type of products and services the business offers. Therefore, you probably don’t need to spend a lot of time educating prospects on what your business does, as they have more than likely already bought a product or seen an advertisement.
A more important process when selling a franchise is to establish a humanitarian connection with the buyer. Modern professionals and consumers are increasingly wary of cut-throat, for-profit-only businesses that do not care about the wellbeing of clients or associates. In fact, 47% of active job seekers say company culture is the key factor in their job search.
As a result, it is important to show prospective buyers how your business is taking care of top talent in the area and giving back to the local community. Use videos, presentations, and social media to demonstrate to buyers that even though your store enjoys the benefits of a recognizable brand, it is and of itself a unique, humanitarian entity that can make a difference through its operations.
4. Have a Strong Idea of What Your Business Is Worth
Although there are many benefits to leveraging the overarching brand, it is still important to remember that your store is a unique location in and of itself. Over the course of your ownership, your management style and the decisions you made will have influenced the value of the business.
Therefore, use a business broker to look at your capital assets, financial documents, goodwill, and future growth potential to arrive at a figure of what your business is worth. If you can then use the brand name to place a premium on the asking price, go for it, but don’t let poorly managed locations negatively impact what you accept for the business you have spent years building.
5. Understand Post-Termination Obligations
In addition to a waiver releasing the franchisor from litigation, sellers will likely be required to sign some form of non-compete agreement. This prevents former franchisees from using their proprietary knowledge of the business to open a competing chain that would take revenue away from their former franchise.
Some non-compete agreements have a term of two to three years in which competing business is restricted, while others simply prohibit former franchisees from using client lists for profit. Whatever the case, be sure to have a path for making a living post sale that does not violate the agreement.
Consider All Your Options When Selling
Selling a franchise has a special set of considerations that do not necessarily apply to a general business. By contacting a business broker, working with the franchisor, establishing a humanitarian connection with the buyer, having a strong idea of the location’s value, and understanding post-termination obligations, franchisees have checked off 5 of the most important steps for successfully selling their franchise business.
About Carson Derrow
