The process of selling a business is difficult and complex, but selling a franchise is en even more elaborate undertaking. Franchise owners are often bound by the terms of their franchise agreement which can add a lot of obstacles to the process. Luckily, many franchises are desirable businesses, and a lot of buyers are looking for them.
Benefits of Selling a Franchise
There are several key elements of a franchise that make it an attractive option for people who want to start a business. One of the principal benefits is brand awareness. Having name recognition provides a competitive edge, since the business already has a reputation and the company has regional, or national appeal. It also helps with marketing and advertising. Even though franchise owners have fees to cover the cost, they get the benefit of widespread advertising without having to do the work for it.
Franchises also come with formal training, and a proven business model. Prospective buyers are attracted to businesses that have consistent success in addition to documented methods for running the business. New owners can step into a turn-key business with a clear path to success. Not only is this attractive for buyers, but it also adds value to the business.
Obstacles When Selling a Franchise
One of the biggest caveats to selling a franchise business is that many franchisors must approve of the sale. Franchisors want buyers who are qualified to run the business successfully and will often have very specific financial requirements. Each franchisor is different, but they could require the franchisee to have a certain assets threshold, or put a large amount of money down when they purchase it. They may also want the buyer to have a certain amount of experience, or be able to commit to a training program. If you are an existing franchise owner, you should be familiar with these requirements, but might find it difficult to properly screen buyers and filter out those who don’t meet the criteria. A business broker can help you to find qualified buyers, and keep you from wasting time with unqualified ones.
Franchisors can also restrict franchisees from selling if there are any outstanding liabilities, especially if they are related to the franchise. For example, if a supplier is owed a large amount of money, the current owner must pay the debt before any sale can go through. Some franchisors have built-in protection that allows them to take over if the seller cannot pay their obligations. In this case they would take over both the franchise and the sales process. Make sure you do not have any large outstanding debts before you try to sell a franchise.
If you find a buyer for your franchise, the franchisor may also get the right of first refusal. This means that if you get a written offer from a buyer, they have the chance to match that offer. In this case they must also match the same terms and conditions. While this might not seem like a bad thing, there are situations where it can hurt the seller. For instance, if a buyer were to offer a trade, such as property, as part of the deal, the franchisor wouldn’t be able to match the offer exactly. In this situation the franchise agreement may allow them to appoint an appraiser to value the business independently and give a fair valuation of the purchase price. This has the potential to hurt your profits. Some franchise agreements also allow the franchisor to take up to 30 days to match an offer, which could slow down the sale process, although many make their decision much quicker.
All franchise agreements are a little different. It’s best to study yours to understand your rights before you make the decision to sell. Because you do not have complete control over the process, it would be a good idea to hire a business broker to help you sell the franchise. A broker can help you review your agreement, point out potential obstacles, and assist you in preparing the necessary documentation for the sale. They can also be invaluable in screening buyers, performing due-diligence and negotiating. Brokers typically already have lists of qualified buyers looking for established franchises for sale, so they could help you find a pre-screened buyer quickly. This can save you loads of time and frustration over trying to find someone who meets the criteria of your franchisor.
Are you a franchisee interested in selling a franchise in Southwest Florida? Corporate Investment Business Brokers (CIBB), headquartered in Fort Myers, has been helping franchise owners sell their businesses successfully for over 30 years. Our experience with national and regional franchises of all sizes can carry you through a smooth and successful sale. Contact us today to get a free valuation and consultation to determine the best path towards selling your business.