What You Need To Know About Selling A Franchise Business

At some point, you may want to know how to sell a franchise business. Read this article to learn about setting a price, potential restrictions and negotiating the deal. Whether you’ve owned your franchise for a long time or just a few years, at some point, you may decide it’s time to sell it.

It’s essential to know that selling a franchise business can be more complex than selling an independent business. Because many franchise agreements limit or restrict a franchisee’s ability to sell their franchises, there are some steps you need to take before you put it on the market.

Let’s look at the guidelines you may need to follow before you list your franchise for sale.

Most likely, franchisors will want to ensure the potential new owner of your franchise is qualified to buy a franchise. To ensure that, they often put the following common restrictions on the franchise agreement that their franchisees sign: 

• The seller must resolve any defaults under the agreement before the sale.
• The seller must release the franchisor from any potential lawsuits.
• The buyer must meet the franchisor’s current qualifications for new franchisees.
• The buyer must sign the franchisor’s current franchise agreement.
• The franchisor must approve the financial terms of the sale.
• The seller may have to pay a transfer fee.

The restrictions you’ll have to follow will depend on what’s included in the franchise agreement you signed. In some cases, the restrictions may be minor, while in others, the franchisor may make it difficult for you to sell the franchise.

For example, as noted in the list above, you may be unable to sell your franchise if you’ve defaulted on any of your obligations under the franchise agreement and haven’t resolved them with the franchisor.

In some cases, sellers are required to sell their franchises back to the franchisor. If you’re considering putting your franchise up for sale, review your franchise agreement to understand the specific restrictions of any sale. You may want to consult an expert, such as a franchise broker or attorney, to help you understand your rights and obligations under the agreement.

If you determine that you can move forward with selling your franchise, you have a few critical decisions to make.

You need to establish the current market value of your franchise unit. Various factors will help you determine that, including your unit’s local reputation and the franchisor’s national reputation, market conditions, and your franchise’s sales and profits.

Potential buyers will want to review your financials, such as your income statement and cash flow, tax return and real estate documents, including your lease agreement, inventory report and franchise agreement.

If you’re unsure how to determine a fair price, your franchisor or a franchise broker can help you set one.

There are three primary ways to sell your franchise unit.

They may have a list of potential buyers who’ve inquired with them about buying a franchise. Or perhaps a franchisee in the system wants to expand their operations and buy another unit.

These business brokers specialize in selling franchises and often have an existing network of prospective franchisees. It would be best to vet any broker before you sign an agreement with them. Here are a few suggestions for doing that:

• Get referrals from local business organizations, your SCORE mentor, business associates or industry contacts.
• When interviewing them, ensure the franchise broker has sales experience and is licensed. Experience selling your type of franchise can be a plus.
• Ask about their fee structure.
• Get references and contact them. This is an essential step — don’t skip it.
• Ask about their process for finding buyers and how they plan to market your franchise.

This will likely be the most challenging of the three ways. While it may save you money, it will probably cost you time. If you’re determined to do it yourself, the easiest way might be to list the franchise on a business-for-sale marketplace. There are resale marketplaces that specialize in selling franchises, such as this one, or you can list your company on general business marketplaces that also promote franchises for sale.  

Regardless of your chosen sales method, telling your employees you plan to sell the franchise before putting it on the market would be best. It’s important that they hear the news from you. You might even find that one (or several) of your employees want to buy the franchise from you.

To successfully sell your franchise yourself, you’ll need to market your franchise. Tell your friends, colleagues and industry contacts you’re selling your business. Also, consider announcing it on your social media channels. If your franchise is in a physical location, consider holding an open house to showcase the operation.

Another critical step in the sales process is interviewing potential buyers to ensure they meet the franchisor’s financial requirements. This will be easier if you have professional help — someone who can examine their financial statements and help you assess their qualifications.

While you can do this on your own if you’ve never negotiated the sales of a high-priced asset, you should consider hiring a professional, such as an accountant, attorney or franchise broker, to help you negotiate the deal. Their experience may help you avoid any legal missteps.

Final negotiations will cover the purchase price, how you’ll be paid, transfer fees, the closing date and other critical information. It’s essential to have an attorney create a legal sales agreement for both parties to sign.

Because you’re selling a franchise, you will typically need the franchisor to approve the sale. The buyers will likely need to complete an application, go through the franchisor’s vetting procedures and meet their requirements. You will officially and legally transfer the franchise to them if they qualify.

As with all important business events, having assistance can make the process of selling a franchise business go more smoothly. Consider consulting with the above-mentioned professionals and a SCORE mentor throughout the sales process. The right advisor can help you successfully achieve your business goals.

This article originally appeared on Score.