A Guide to Selling a Franchise

A Guide to Selling a Franchise

Do you own a franchised business? Eventually there may come a time where you have a need or a desire to sell your franchise to someone else, to pass the torch along and to move on without your business. The act of selling a franchise is known as ‘Franchise Transfer’ in legal franchising terms. Essentially you will be selling all of your rights in the franchising agreement to another party under all of the same terms that were in the original contract.

The franchisor is responsible for approving the Franchise transfer, which means that there are a few considerations to make before you take this step. Hopefully these tips on selling franchised businesses will come in handy when it comes to determining whether or not to sell, who to sell to, and what steps to take to make sure that the sale goes as smoothly as it possibly can; benefiting every involved party in the process.

  • Before you advertise your franchise as an opportunity for sale in any way, it is imperative that you go over your franchising agreement with a fine-tooth comb to analyze the terms. You should pay particular attention to the transfer section, to find out what rules and regulations are in place for such an event. It is important to be aware of how your particular franchisor is looking to handle something like this before you venture out and try to accomplish a franchise transfer on your own.
  • Before you begin to make any decisions, contact your franchisor well in advance to make them aware of your intentions and your goals. You should keep them informed from the start, and keep them updated once you begin your search for an owner for your franchise. It would not be a good idea to let your franchisor find out about the potential sale through a classified ad or a website, so speak to them first about your need to sell your franchise before you make any decisions on your own. Not only will they prefer to know ahead of time, but they also may have some support or suggestions to provide.
  • Speak to your franchisor directly to find out if he or she knows of any buyers in the immediate area who may be interested in purchasing your franchise. You may be able to obtain information for potential buyers without having to put too much effort into finding them yourself. If there are no current buyers in your area, find out from your franchisor whether or not there was buyer interest in the past.
  • Consider hiring a business broker who can walk you through the entire process, and who can offer valuable insight at every step of the process. You must be willing to shop around when it comes to hiring a business broker, because they are all very different. Some business brokers may tie up a listing without doing anything with it for months, while others will get your listing moving quicker than you had hoped.
  • Be careful of any competitor who shows interest in purchasing your franchise. Even if they are competing with you in the same industry, they may not actually qualify based on the business strategy of your franchisor. You may end up with a denied or declined transfer application. In the process of the transfer, however, you may find yourself disclosing proprietary information about the franchise, which may be a bold violation of the terms stated in your franchise agreement. It is probably better just to avoid any competitor who shows interest in buying your franchise, as very little good will likely come of it.
  • When you do manage to make a sale, make a point to get all of the money for that sale up-front. You may not be paid by the initial terms that you came up with when drafting the sales agreement if a future dispute comes up between the new buyer and the franchisor. It is a better and much safer idea simply to avoid this kind of delay by requesting the full amount as soon as the sale is made and long before any type of dispute can arise.
  • Do not sell your franchise to the first qualified individual, or the first person who can offer to buy your franchise in cash. You should sell your business, instead, to someone that you believe will be good for the franchise system as a whole. This will ensure much smoother path through the transfer application process when it comes to seeking approval from your franchisor.

Selling a Franchised business is not the same as selling a regular business by any means. Having constant awareness of this fact is important if you want to succeed at getting the most out of selling your franchise company after building your business up for so long. There is a very real chance that your franchise business will outlive you, because while people eventually go into retirement, a successful franchise will not. Sooner or later, then, every franchise owner is going to have to go through the tedious process of trying to sell their franchise.

Unfortunately, many franchise business owners enter into the selling process with little or no information on the subject. An uninformed franchise owner can endure an endless amount of suffering and frustration. Being uninformed about the franchise transferring process may also result in a lower selling price than the franchise business is actually worth. If you have worked hard to build up your franchise business, then you deserve to see back every penny that you have spent. With that in mind, it is important to educate yourself on the process as fully as you can, so that you will know what to expect at every turn and with every facet of the process.

Keep your Franchisor Informed at All Times – It is absolutely imperative that your franchisor be informed regarding your plans to sell your franchise. You need to let him or her know immediately, as they have specific rules that may pertain to the regulation of your franchise sale. Sit down with your franchisor and go over any and all rules pertaining to the sale of your franchise, which should be listed in the contract that you signed when you purchased the franchise to begin with. You may also find that your franchisor has support and assistance to offer you when it comes to selling your franchise. They may already be aware of potential buyers in your area, allowing you to quickly transfer ownership of your franchise to someone who has already qualified to purchase it.

Prepare for the Sale – The first step may be to inform your franchisor about your intention to sell the franchise, but there is much more than this to the process. You also need to make preparations to sell your franchise long before you even place it on the market for sale. For example, you will need to establish a value for the franchise and setting a price that you will ask for, in addition to compiling relevant financial information, notifying key employees about the sale, and putting together a basic sales package for prospective buyers. Some franchise sales do require more preparation than others. Your franchisor should be able to give you specific advice.

Practice your Advertising Pitch – Even if your franchise is the best deal in the entire town, unless your buyers are aware of it, your franchise is not going to go anywhere. You need to make sure you promote your franchise as thoroughly as you possibly can, and through every potential avenue out there. You may consider registering with a franchising agent or business broker if you need help with this process. Practicing your sales pitch by allowing friends to critique your pitch is a good way to prepare yourself for going live with real potential buyers.

Provide as much assistance as the Buyer needs – You should be aware that you will probably need to provide assistance to whoever buys your franchise. There are many different forms of assistance that may be necessary, so prepare to provide training, or to work directly alongside the new buyer for the first few months of business. The more you work to prepare the buyer for their new business, the more success they will have once you have moved on.

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