How do you sell a Franchise idea?
Franchise owners often have an advantage when selling their business, because a franchise is naturally monitored and audited by the franchisor. There is thus less uncertainty regarding revenues and expenses. Prospective buyers can also expand their due diligence by reaching out to the franchisor and other franchisees in the system, who often serve as a defacto marketplace for re-sales themselves. While the sales process time consuming and varies significantly from franchise to franchise, you should generally consider the following steps when selling your franchise:
- Contact Your Franchisor. Some franchisors will help with the resale and transfer. You will also need the franchisor’s approval of the prospective buyer. You should thus check your franchise agreement and ask the franchisor for the specific sale and transfer requirements such as, for example, applicable transfer fees and necessary qualifications of the prospective buyer.
- Valuation Process & Due Diligence. You should discuss the valuation of your business with an accountant, so that you may realistically sell for the highest possible sales price. For an accurate valuation, your business must have properly managed books and records, and all of its bank accounts should be reconciled with its bank statements, tax reports, and yearly or quarterly financial statements. These items will also be provided to any prospective buyer for review during the due diligence phase, so it is wise to compile all such information beforehand.
- Marketing Your Franchise for Sale. After you have gotten an accurate valuation of your business and put together all relevant business records, statements, reports, books, and other information, you will have to market your business for sale to find potential buyers. Some franchisors will help you find a buyer. Business brokers may also be helpful, however, they often specialize in selling new, not existing or operating, franchises.
- Negotiations and Closing. Once you have found interested buyers, you should consult with an attorney regarding the negotiation and closing of the sale. You should not hand over any of your business records before the prospective buyer has signed a non-disclosure agreement. When you have reached an agreement, you and the buyer will have to execute various agreements to set forth the terms of the sale, effectively transfer the franchise, and properly close the transaction. An attorney can assist in negotiating favorable terms and you should have an attorney prepare all of the necessary agreements.
- Post-Closing Obligations. Notwithstanding the successful sale of your franchise, you will still be bound by some of the provisions of your franchise agreement, such as, for example, non-compete restrictions. You should therefore consult with an attorney to ascertain which obligations and restrictions will survive the sale of your business and for how long they will remain in effect.