Selling A Franchise Business

Selling a franchise business is not as straight forward as selling your own business. Your franchise agreement will have detailed instructions on the procedures that you need to follow when you take the opportunity to sell your business.

The franchisor will be able to assist you in valuing your business and will probably insist that you use the methods of valuation as set out in the franchise agreement. You will of course be free to seek independent advice and valuations.

Be careful when seeking the advice of experts and always agree the price beforehand so that you are prepared for the final costs and have a chance to negotiate any prices quoted before giving them the work.

It is always worth seeking a second opinion as valuations can vary wildly. This is due to the many variables the valuation experts take into account including future growth potential of your business and values for any properties whether leased or purchased.

The franchisee will have to seek the permission from the franchisor to sell the business. This permission can not be unreasonably withheld or delayed provided that the franchisee has adhered to the terms of his agreement and has found a suitable buyer.

In some cases the franchisee will have to pay a small percentage of the sale price to the franchisor. This can range from five percent to twenty five percent of the final price. The franchisee will also have to pay the franchisor a small sum to do the normal checks on the future buyer.

The franchisor usually has a right to buy your franchise business at the same price as the highest offer received and considered acceptable. This is a normal part of any franchise agreement and is there to protect the franchisors rights. If they believe that you are selling the business at under value, then they could take the opportunity to step in and buy the business for the same price.

The franchisor might also want to take his business back into private control and this is an optimum time to buy the rights back. If this is the case then the franchisor might actually step in and bid higher than the current highest offer.

In most cases the new buyer will not be able to take over your franchise agreement. A new agreement will have to be created for the new buyer and your agreement will lapse. You will have to ensure that all monies due as per the franchise agreement will have to be settled prior to the transaction taking place.

Most franchisors will be able to assist you in the sale of your business if required. This service usually demands a premium and or a higher percentage of the purchase price.

Finally bear in mind that there is always a difference between the valuation and the final price achieved. In some case this difference can be huge. In the end the market place will decide what your business is worth and not the valuation report. At any point in time some business are more in demand then others and can command prices well in excess of their valuation price. Taking all this into account it is better to sell the business when the economy is doing well or at the right side of the economic cycle. By getting the timing right, this can make a huge difference to the sales price achieved.