Selling a Franchise Business: Tips and Best Practices

Franchises are considered a lucrative model for entrepreneurship because they offer the benefits of leveraging proven processes and ongoing support. They are in high demand among novices and seasoned entrepreneurs because of brand recognition and goodwill in the marketplace.

Franchise businesses can be sold as Greenfield opportunities or as existing units with excellent turnover records by franchisees who want to retire or exit. In both scenarios, these businesses can generate an exceptional ROI for the seller.

Although finding buyers for a franchise business is easier, the seller needs to follow a systematic procedure to gain higher returns. Here are the tips and best practices for selling a franchise business that will make the process hassle-free and quick. These can be followed by franchisees who wish to exit before the end of their franchise terms.

1. Involve the Franchisor In the Process

Some franchise agreements have clauses for the sale of the unit, and the franchisee must follow the obligations. Usually, the franchisor must approve the sale and the buyer to complete the transaction. Also, some agreements have the right of first refusal clause that allows them to buy back the franchise instead of selling it to a new buyer.

Thus, it is best to read the agreement and speak to the franchisor about the sale to avoid disputes. In addition, the franchisee must inform the commercial property owner about the impending sale to ensure a smooth lease transition. You will also have to review the franchise agreement and make changes if required before the transfer.

2. Prepare the Franchise for Sale

Before selling the franchise, the owner needs to make the asset worthwhile for buyers. The office must be spruced up for inspections, and paperwork must be organised for due diligence, and positive cash flow must be displayed to influence them. It is better to pay off pending debts and expedite the retrieval of outstanding payments.

All these preparations require some groundwork and must be done before you begin to sell business online. To increase the attractiveness of the entity, the franchisee must reduce unnecessary expenses and increase sales through cross-selling, upselling, referrals, word-of-mouth publicity, discounts, improving customer service and local marketing.

3. Identify the Price and Prepare Franchise Listing

To sell business online, the franchisee needs to ascertain the market value of the franchise. They must ask a real estate accountant to calculate the asking price and discuss it with the franchisor to ensure accuracy. The market trends and selling prices of similar franchises must be considered when deciding the price, which should have room for negotiations.

Once the selling price is established, the franchisee must get it listed on reputed business buying and selling websites with high traffic. It will ensure that interested buyers view the advertisement and it reaches a wider market to generate leads. The seller can also take help from business brokers to accelerate the process and pre-qualify potential buyers.

4. Evaluate Potential Buyers and Prepare for Negotiations

Screening the qualified potential franchise buyers is time-consuming and must be done carefully. The ROI of the seller depends on the financial capability of the buyer. Thus, they must be chosen after thoroughly examining their funding capacity and ability to run the franchise. It is necessary to find competent candidates because they must get approval from the franchisor.

After finding an ideal candidate, you need to discuss the terms of the sale, franchise agreement and other obligations. Also, price negotiations must be handled effectively to avoid making a bad deal. Do not be in a hurry to sell the business online. It is better to wait and get the right price than sell for a loss. You must ask your business broker to help you with effective negotiation strategies for the sale.

5. Help With the Due Diligence and Complete the Transition

The potential buyers will also conduct the due diligence of the franchise business and the seller must cooperate with them. They must provide them all the financial data to determine the health of the business. The franchisee or the franchisor cannot hide any details about the franchise, such as pending litigations.

The franchisee must prepare the franchise disclosure document for this purpose, and it must include information about the initial fees, royalties, working capital, products and services, trademarks, exclusive territory, franchise term, renewal, financial data, lease contract, suppliers, employees, etc. After the evaluation, the training process must be finalised, and the schedule must be informed to the new buyer. The outgoing owner must ensure that the handover occurs smoothly by helping with the transition.

Wrapping Up

Selling a franchise business is similar to selling a business. The only difference is you need to keep the franchisor in the loop and follow the terms of sale or transfer mentioned in the franchise agreement. The step mentioned above will help you manage the process without any hassles.