a franchise can be sold for as much as

What happens when a franchisee wants to sell the franchise?

A big point of contention that we see when a franchisee wants to sell its franchise is the franchisor’s transfer fee. A transfer fee is the fee a franchisor charges to the franchisee if the franchisee sells the business or shares in the company operating the franchise.

What is the difference between a franchiser and a franchisee?

The franchiser is the owner of the larger company who sells the rights to license their business, and the franchisee is the third-party owner and operator of the business locations. You’ve done business with a franchise before, even if you don’t know it.

How much money do you need to start a franchise?

Every franchiser requires an upfront fee. This can range from hundreds to hundreds of thousands of dollars. Preferably, the franchise fee would be paid out-of-pocket (though some franchisers offer financing options). Either way, we recommend having at least $10,000 to invest up-front.

How much can you sell a franchise for?

Franchises are often valued based on a multiple of revenue, cash flow, or earnings before interest, taxes, depreciation, and amortization (EBITDA). As the name implies, the EBITDA method adds back some expenses to the earnings total, and a franchise can be valued at 4 to 5 times EBITDA.

Can a franchise be sold?

Many franchise owners choose the FSBO (for sale by owner) approach to selling their existing franchise and are successful at it. Thus, our resources and tips are aimed at the do-it-yourself franchise business sellers.

How long does it take to sell a franchise?

The average franchise sales cycle is 12 to 20 weeks On average, the total time to close a franchise sale can be up to 20 weeks.

Can you sell back a franchise?

Getting Approval for a Franchise Sale Selling the business back to the franchisor can be a good option, but only if the franchisor is willing to repurchase the business. Furthermore, the franchisor may not be willing to pay an amount that will be sufficient to make you whole.

How do you sell a franchise?

Selling Your Franchise in Three Simple StepsStep 1: Prepare Your Franchise for Sale. Start by contacting your franchisor. ... Step 2: Market Your Franchise for Sale. Most business brokers use online portals and their own proprietary databases to market businesses for sale. ... Step 3 – Negotiate and Close the Deal.

Can I sell my McDonald's franchise?

McDonald's requires that the buyer of an existing restaurant pay a minimum of 25% cash as a down payment, and the balance must be financed for no more than seven years. Each franchise applicant must have at least $500,000 in liquid assets in order to apply.

Can a franchisee sell his franchise?

Every franchise agreement contains provisions that control how, when and if a franchisee can sell its franchised business. The reasons for this and what this means for franchise re-sales are critical to appreciate from the perspective of both franchisors and franchisees.

How long is a franchise?

The typical length of a franchise agreement is between five and 20 years. A common reason for this general length of time is often the size of the franchisee's initial investment, though market conditions and the type of franchise can also be factors.

How long does it take for a franchise to become profitable?

One common misconception when it comes to operating a franchise is that once you sign on the dotted line and open for business, the customers and revenue will start flowing. This is typically not the case. It normally takes a year or two to become profitable.

How easy is it to get out of a franchise?

Franchisors have a vested interest to ensure their franchisees success, but they are generally not in the business of letting franchisees out of their contracts early without some form of compensation. A franchise agreement is a fixed term contract and there is no early right to exit unless the parties agree.

What happens when you close a franchise?

Financial Implications You may lose monies you've paid into the business if your franchise agreement is terminated. This might include money spent on advertising and marketing, or monies paid to the parent company for the franchise agreement.

What happens if your franchise fails?

Often the best answer to a franchise that is not succeeding is for the franchisee to sell the business to a third party who becomes the new franchisee for that territory. This allows the failing franchisee to terminate its obligations under the franchise agreement and under any lease.

Can a franchisee sell his franchise?

Every franchise agreement contains provisions that control how, when and if a franchisee can sell its franchised business. The reasons for this and what this means for franchise re-sales are critical to appreciate from the perspective of both franchisors and franchisees.

Can a franchisor sell a franchise?

Having your FDD issued is one of the most important milestones on every new franchisor's franchising journey. It means you can legally start offering and selling franchise opportunities to prospective franchisees – and taking your brand to new heights.

Can a franchise be taken away?

If fees are not paid to the franchisor on time, and there are multiple offenses, a franchisor may decide to terminate your franchise agreement. If a franchisee discloses incorrect information, such as erroneous net worth, or fails to provide records as required by the franchise agreement.

Are franchises transferable?

The person to whom you are transferring your franchise must agree in writing to take over all obligations and responsibilities under the franchise agreement such as the obligation to pay royalties to the franchisor and protect the franchisor's trade secrets. Written approval from the franchisor.

Why are franchisors important?

The reason these rules exist is because the corporate office wants to maintain their company image and they don’t want a franchisee to tarnish that with a business model that is different than their own. Franchisors are always involved in every big decision that a franchise business makes, including the sale of the business. Since franchisors must approve when someone starts a franchise business, they also have to approve the buyer who is purchasing the franchise business from the seller. Like with the original owner of the franchise, the franchisors want to make sure the new buyer is capable of running their proprietary business model and implementing their methodologies into it the same way the seller did before.

What do you need to do before selling a franchise?

Before the sale of a franchise business, the buyer must sign a franchise agreement created by the franchisor. This is the same agreement that the seller had to sign when they first started the franchise business. In addition, the current franchisee (seller) must settle all debts and payment defaults related to their franchise business ...

What happens after a franchise is sold?

After the sale of a franchise business, the franchisee will still have some obligations left after the transfer of the business has been made. A lot of these obligations must do with what businesses or jobs they can and cannot take after the completion of the sale.

What do franchisees do?

So, what a lot of franchisees do is build up their franchise business to the most profitable and successful that it can be and then they sell their franchise business to another buyer. Then, the franchisees move on to another franchise business and try to make that successful so they can do the same thing there.

Why would a franchise owner want to sell their business?

There are two main reasons why a seller would want to sell their franchise business. Either the business is very valuable and they want to cash out or they simply aren’t running the business well and they want to get out before they lose everything. Since there’s a steady flow of buyers who want to purchase franchise businesses, ...

How long after selling a franchise can you start a competing business?

Most franchise agreements have non-solicitation provisions and non-competition agreements which outline that franchisees cannot start a competing business for the next 2-3 years after they sell their franchise business.

What are the biggest franchises?

Some of the biggest franchises that are out there include McDonald’s, KFC, Burger King, Subway, 7 Eleven, Pizza Hut and the list just goes on. Many of the restaurants, gas stations, and fitness clubs that you see are likely franchise businesses which each have separate owners. Of course, they must pay royalties to the corporate office which owns the rights to the business. The corporate office is the headquarters of the company where the owners, or franchisors, manage the overall business and all the franchisees they’ve given licenses to.

Selling an existing franchise

For franchisees who are ready to sell their established businesses, here’s a piece of good news: According to a study conducted at Palm Beach Atlantic University’s Rinker School of Business, franchise resale prices are higher than those of non-franchise businesses.

Step 1: Prepare Your Franchise for Sale

Start by contacting your franchisor. There is no reason to keep the sale confidential from your franchisor who is accustomed to their franchisees exiting at some point. Ask if they can help you with a resale or transfer. Find out the extent of assistance they offer. The process varies significantly from franchise to franchise.

Step 2: Market Your Franchise for Sale

Most business brokers use online portals and their own proprietary databases to market businesses for sale. If your franchisor does not aggressively market the sale of your business, a business broker can do this for you.

Step 3 – Negotiate and Close the Deal

Once you’ve found a buyer who is interested in both your business and the franchise model, you can negotiate a price and begin with the closing process.

Selling your franchise opportunity

Every franchisor knows that the success of a franchise system is dependent on franchisee success. So simply selling a franchise is not enough. It really comes down to awarding a franchise to the right person. For franchisors who want to grow their brands with quality candidates, here are three simple ways.

Step 1 – Work with Quality Franchise Brokers

Working with quality franchise brokers is an effective and popular way for franchisors to find ideal candidates. In fact, franchise referral consultants (a.k.a brokers) have been found as the top source for lead conversions.

Step 2 – Exhibit at Trade Shows

Exhibiting at trade shows is a great way for franchisors to get in front of potential candidates face-to-face. Trade shows allow franchisors to market their brands to a large number of qualified prospects at one time. This in-person opportunity gives both parties a chance to get to know each other in a casual setting.

What is a right of first refusal?

Another transfer restriction common to many franchise agreements is a right of first refusal ("ROFR") for the franchisor to buy back the franchise. Essentially, this provision states that if the franchisee finds a bona fide purchaser, the franchisor can step in and buy the franchise on the same terms that were offered to the third-party buyer. ROFR or first refusal provisions can prove to be sticking points for potential buyers, who do not want to go through an extensive due diligence and financing processes only to have the franchise opportunity deal taken off of the table at the eleventh hour by the franchisor. Typically, where a ROFR provision is a concern, it can be proactively addressed so that all of the parties to the process are on the same page.

What does franchising want to do?

The franchisor will want to make sure that the buyer can meet its financial obligations under the franchise agreement (in addition to paying its other bills as they come due), and is not overextended as a result of a hefty loan.

What is a franchisee's execution of a general release?

The franchisee’s execution of a general release, waiving all potential lawsuits against the franchisor

Can a franchisee take advantage of the customer list?

Similarly, even if the selling franchisee is able to start a competitive business , they may still be prohibited from taking advantage of the customer list and goodwill they developed during the term of their franchise agreement , as these assets were built by leveraging the mark and processes of their former franchisor.

Can a franchisee sell a franchise?

In either case, the franchisee’s right to sell the franchise will be governed by the transfer provisions in their franchise agreement.

Who is Jeff Fabian?

Jeff Fabian is the owner of Fabian, LLC, a boutique intellectual property and business law firm serving new and established franchisors and prospective franchisees. Contact the firm directly at 410.908.0883 or [email protected]. You can also follow Jeff on Twitter @jsfabian.

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What happens when you try to sell a franchise?

When you try to sell a franchise, you may be competing with one very large, well-financed competitor: your franchisor . 'While many franchisors tell their franchisees that they will assist in finding a buyer when the franchisee chooses to sell, my experience is that most do not offer much, if any, assistance,' says Andresky.

Why are independent businesses harder to sell?

Another reason independent small businesses are typically harder to sell is that their operations are inside the head of the founder. 'One of the benefits of selling a franchise is you have a system to follow, initial training and ongoing support ,' says Larry Lane, owner of VR Business Brokers of McKinney, Texas.

What are the challenges of selling a franchise?

Selling a Franchise: The Challenges. 1. Transfer fees and restrictions. Franchisors like to control and vet who they accept as franchisees, which means there is often an approval process to undergo and transfer fees to pay when a franchise unit changes hands.

Why are small businesses so hard to sell?

The reason most smaller businesses are hard to sell is that they are too reliant on the owner as the rainmaker. With a franchise business, at least some of the reason customers find and return to the business is the brand the franchisor has built. 2. Buyers get an operations manual.

Why don't you pick up a big Mac?

'When you pick up a Big Mac, you're probably not choosing McDonald's because you're loyal to the owner of that franchise ,' says Joel Libava, a specialist in helping people choose franchise businesses.

Who is the CEO of Viome?

At the 2021 Inc. 5000 Vision conference, serial entrepreneur Naveen Jain, the founder and CEO of gut health startup Viome, discussed the key elements for developing your startup idea.

What is franchising in business?

Franchising is about uniformity and control of uniformity, not the needs, preferences, or success of individual franchise owners. In other words, a person that owns his or her own business is concerned only with the performance of his or her own business.

Do franchise owners have control over hiring employees?

While franchise owners will likely have control over hiring and firing employees, in terms of the marketing, messaging, products sold, hours of operation, etc., franchisees generally have very little, if any, discretion or control.

Is franchise business different from owning your own business?

The secret that is often kept from enthusiastic prospective franchisees, however, is that the franchise business he or she is purchasing is actually quite different from “owning your own business” or “being your own boss.”.

What is a franchise?

A franchise is a business in which independent entrepreneurs use the rights to a larger company’s business name, logo, and products to operate an individual location. The franchiser is the owner of the larger company who sells the rights to license their business, and the franchisee is the third-party owner and operator of the business locations.

What is club pilates?

Club Pilates is one of the top pilates franchises in the United States. Founded in 2007, this group fitness franchise carries out up to 8 million pilates workouts a year.

How much does a franchise cost?

Every franchiser requires an upfront fee. This can range from hundreds to hundreds of thousands of dollars.

What is super glass windshield repair?

SuperGlass Windshield Repair has been operating for 30 years and specializes in the repair of rock damaged and cracked windshields. Overhead costs can be kept low due to its mobile option — a physical shop location is not required. It also offers classroom and on-the-job training,

How long does it take to run a McDonald's franchise?

The franchise term for McDonald’s, for example, is 20 years.

How much does it cost to buy a franchise?

The initial investment in a franchise can be pricey, and range anywhere from a few thousand dollars to over a million. If you're looking to purchase a franchise at a lower price point, there are options for you in a variety of industries.

How long does it take to get started with 7-11?

As the #1 convenience store, 7-Eleven is seeing unprecedented growth. Its stores are turnkey and you can get started within three to six months, including application, testing, and training.

What happens if a franchisee dies?

And many franchise agreements include similar provisions. In both cases there is language in the agreement that talks about what would happen if the business owner or franchisee dies. But close examination of the language reveals that it only provides for an “option to purchase.” In other words, the co-owners or the franchisor are given an opportunity to buy the interests of a deceased owner, but may not be obligated to do so.

What should a financial advisor be focused on?

You should be focused on creating value and your financial advisor should be focused on helping you to protect that value. This includes both protecting the value and you and your family. As a franchisor or franchisee owner, what would happen to your family if you died unexpectedly? Would they have enough money to provide for their needs? Further, has the franchisor pre-approved ownership following the operation of your buy-sell agreement?

Why is a buy sell arrangement important?

A properly executed and funded buy-sell arrangement can provide more protection for a business owner’s family (and for co-owners or other potential successors). This is especially important to have when a “triggering event” occurs such as death, disability, divorce or change of control. Five Questions. As you think about protecting the value of ...

What is fixed price buy sell?

Fixed price buy-sell agreements are simplest. All the owners have to do is agree on a price. Unfortunately, the fact is that most owners don’t update their agreements, creating real problems if value changes over time.

How to get a higher end buyout?

Make sure to look at comparable businesses in similar industries for multiples of earnings to see if you’ve got a competitive valuation pricing. You want to have a good valuation to get a higher end buyout if possible. That involves making sure the business is running efficiently, so look to consultants and experts who can help you enhance your value coming into the sale or bidding process. Get an outside valuation to firm up your asking price (which will also be due diligence to show to the buyer).

Can a franchisor be a successor?

The answer, of course, may depend on the terms of your franchise agreement. If you’re a franchisor, there are at least four potential candidates to be your franchise successor. The terms of your franchise agreement may require that the franchise sell back to the franchisor (as mentioned above, a ROFR). You may be co-owners of a franchisee and your co-franchisee (s) would be the most likely successor. There may be other franchise owners in your community who would be interested in buying you out. There might be a key employee who could be groomed to run the franchise after you. Depending on the size and growth of your business, your company may also be an appealing acquisition candidate for a third party buyer. A knowledgeable investment banker with experience in the world of franchisors and franchisees could be a critical advisor to you on this point.

Is a buy sell agreement a protection test?

This fails the protection test. We began this discussion of buy-sell agreements with the idea of providing real financial protection for the franchise owner’s family. But the family is not protected unless someone has an obligation to provide cash (on a very timely basis) in exchange for the deceased owner’s franchise interests. Without an obligation, the family may be exposed to potential financial hardship.

What is the Kumon method?

The Kumon Method for improving math and reading comprehension was first created in 1958, based on a curriculum developed by Toru Kumon in Osaka, Japan. Today, Kumon Math and Reading Centers help students learn critical math and reading skills that prepare them for more complex concepts later on in their education. With a low cost to entry and high demand, Kumon can be a great opportunity to help students get a leg up on their education, while also creating a great business opportunity for prospective franchisees.

What is franchise investment?

All franchises come with some kind of investment, which usually comprises corporate fees, startup costs, real estate, staff, equipment and other expenses, too. Your investment will be contingent on several things, but the two most important are the mandatory expenses set by the parent company to get up and running as well as the regional expenses that dictate costs (in other words, some markets are more expensive than others).

How many states does Sonic have?

Sonic is an American fast-food staple with unmissable branding, mostly fueled by their drive-in style of service and unique soft drinks. With franchises in 46 states, Sonic offers a strong franchise opportunity that comes with a cult following for their unmistakable menu items (cherry limeade, anyone?) as well as core staples that customers expect and love.

What is Keller Williams?

Keller Williams has a reputation for providing real estate agents with opportunities to grow professionally while helping their clients find their dream homes. The company began in 1987 and has been attracting agents through profit-sharing agreements and other perks, which can make it easier for franchise owners to recruit and retain top talent.

What type of loan do entrepreneurs take?

Many entrepreneurs choose to take advantage of a business loan, including SBA loans, business lines of credit, term loans and equipment financing. To begin, check out the best franchise financing options.

Is Anytime Fitness a franchise?

Few fitness franchises are as hot right now as Anytime Fitness. This gym franchise focuses on offering group workouts as well as solo workout equipment. Best of all, the franchise provides members with a keycard to access the gym during off-hours, allowing people to work out on their schedule. Operating costs are low, and name recognition is high — so high, in fact, that there are currently 4,000 locations worldwide.

Is Ace Hardware a good franchise?

Ace Hardware is an excellent franchise prospect for providing an antidote to the big-box home improvement store experience, which is typically marked by unhelpful staff and overwhelming product choices. Instead, Ace Hardware locations pride themselves on hiring staff that put customer service at a premium and keeping product choices to a reasonable selection. Their franchises make it easier for local hardware stores to remain competitive against mega-stores by way of their cooperative structure and store-brand products.

Rules and Restrictions

Benefits

Tips For The Sale

Post-Sale Obligations