how do i sell franchise in different states

It is important that the franchisor read the laws and regulations of each state:

• Franchise filing states require franchisors to submit an FDD and pay a fee without further state approval.
• Franchise licensing States demand that franchisors submit an FDD, pay a filing fee, and get state approval.
• Franchise non-registration states require that in order to market and sell franchises there, franchisors must submit their FDDs and abide by FTC guidelines.

Full Answer

How do you sell an existing franchise?

Whether you are ready to sell or you are just considering it, here are our top tips for selling an existing franchise:List your franchise for sale on FranchiseFlippers.com. ... List your franchise on other online business listing websites. ... Reach out to fellow franchise owners in your franchise system personally.More items...

Which states regulate franchises?

For franchisors with a federally registered trademark, the Franchise Filing States include: Connecticut, Florida, Kentucky, Nebraska, North Carolina, South Carolina, South Dakota, Texas, and Utah. For franchisors without federally registered trademarks Georgia and Louisiana also require filings.

How can a franchise be transferred?

That means that a new owner can either take an assignment of your existing franchise agreement or enter into a new agreement with the franchisor. Most franchisors include in their franchise agreements the right of first purchase or the right of first refusal.

Can you sell a franchise that you bought?

Most franchise agreements contain strict limitations on the franchisee's ability to sell their franchised business. Fundamentally this makes sense, as the franchisor needs to make sure that it has final say over who gets to do business under its name and using its proprietary system and methodologies.

What are the legal requirements for a franchise?

Generally, the offer and sale of franchises find legal basis in laws such as:The Indian Contract Act, 1872.The Foreign Exchange Management Act, 1999 (FEMA).The Competition Act, 2002.The Trademarks Act, 1999.The Copyright Act, 1957.The Patents Act, 1970.The Design Act, 2000.The Income Tax Act, 1961.More items...

What are the basic requirements of the Franchise Rule?

The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.

How do you become a franchise owner?

Become a Franchise Owner in 5 Easy StepsDo every last bit of your homework. Just because you want to buy into an existing chain doesn't mean you don't have to do a massive amount of research. ... Incorporate or form an LLC. ... Inquire and apply to the franchisor. ... Obtain financing. ... Everything else.

What is a franchise assignment?

Occasionally a franchisee (i.e., one who has bought and operates a franchise) will want to assign his rights in the franchise to a third party (referred to as the “transferee” because the privileges are being transferred to him) for either practical or personal reasons.

Is it hard to sell a franchise?

Selling an operating franchise has a higher success rate than selling an independent business because most buyers place a high value on the support provided by the franchisors. Unlike franchises, most independent businesses lack the infrastructure and systems that make a business attractive to buyers.

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.

How do you price a franchise for sale?

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.

Who regulates franchises in Georgia?

Who Regulates Franchises in Georgia? Because Georgia has not enacted franchise specific laws Georgia does not have any state specific regulator. However, the Department of Law of the Georgia Consumer Protection Division is charged with overseeing enforcement of Georgia's Business Opportunity Laws.

Does a franchise have protection under the law?

State franchise laws are designed to protect residents of the state against unfair or deceptive practices by franchisors. Generally, the law of the state where the franchisee resides or where the franchisee will operate the franchised business is the applicable state law for regulatory compliance.

Does Florida have franchise laws?

Florida has not enacted franchise specific laws and is not a franchise registration state.

Who regulates franchises in California?

Before offering or selling a franchise in the State of California franchisors must first register their FDD with the California Department of Financial Protection and Innovation. Registration expires 110 days after the end of the franchisor's fiscal year end and requires annual renewal.

How long do you have to disclose a franchise before selling?

Franchisors must disclose a properly issued and current franchise disclosure document 14 days before offering or selling a franchise.

What is the role of a franchisor in a franchise?

Franchisors must manage and maintain their FDD, franchise disclosures and franchise relationships in compliance with a broad range of state franchise regulations and state franchise relationship laws.

What is a franchise disclosure document?

Franchisors must develop, maintain, register, and disclose a uniform Franchise Disclosure Document ( FDD ). The FDD must be registered in the franchise registration states, filed in the franchise filing states, and disclosed in every state to a prospective franchisee. Franchisors must manage and maintain their FDD, franchise disclosures and franchise relationships in compliance with a broad range of state franchise regulations and state franchise relationship laws.

Do franchises have to register FDD?

Under the federal rule, franchise compliance is largely self-regulated and franchisors are not required to file or register their FDD with any federal agency.

What states require franchise registration?

Registration states currently include: California. Hawaii. Illinois. Indiana. Maryland. Michigan. Minnesota.

Which states have franchise laws?

States with business opportunity laws or that are considered filing requirements include: Connecticut. Florida. Georgia.

What is the FDD in franchising?

and related regulations promulgated by the Federal Trade Commission (the “FTC”). One of the critical directives in federal law is that a franchisor must provide prospective franchisees an appropriate franchise disclosure document (a “FDD”) ...

What is a franchise disclosure document?

The Franchise Disclosure Document. Federal laws and many state laws place considerable emphasis on the contents and distribution of a franchisor’s disclosure document. Some states require franchisors to register their FDDs annually with the state regulatory agencies.

What information do franchisors need?

Franchisors must supply information about the business experience of its principals, any litigation involving the franchisor or parent companies, financial information about the franchisor, and all of the franchisee’s financial and other obligations.

What information is required for a franchise FDD?

Under the FTC’s Franchise Rule, a franchisor’s FDD must include basic information, including specified contact information, the trademark that the franchisees will use, and a description of the business.

Why is selling a franchise a complex undertaking?

State Franchise Laws. Selling a franchise is a complex undertaking because the seller must comply with both state and federal franchise laws. The way some state franchise laws are written, businesses may find that their contractual dealings put them in a franchisor/franchisee situation even if they had no intention of selling a franchise.

Non-Registration States

The following States do not require filing or registration to be able to sell Franchises in the State. They only require that the Franchisor follow the FTC Guidelines and have an approved FDD.

Filing States

A Filing State is one that requires the Franchisor to file and pay a fee, but does not require the Franchisor to submit documents and seek approval to sell Franchises, like a registration State.

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What states require franchisees to register with the FDD?

Which states are registration states? The registration states are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota , Rhode Island, South Dakota, Virginia, Washington and Wisconsin. Failure to abide by these states’ laws can result in fines and penalties being imposed by the state and the requirement that a franchisor rescind (void) the franchise agreement and refund all monies paid to the franchisor by the franchisee. These laws are intended to protect a franchisee and often provide for a private right of action (right to sue) by a franchisee that the federal Rule does not provide.

How long does it take to get a franchise disclosure document?

The Rule requires that a franchisor provide a prospective franchisee with a Franchise Disclosure Document (FDD) at least 14 calendar days prior to offering a franchise ...

What happens if a franchisor fails to abide by the laws?

Failure to abide by these states’ laws can result in fines and penalties being imposed by the state and the requirement that a franchisor rescind (void) the franchise agreement and refund all monies paid to the franchisor by the franchisee. These laws are intended to protect a franchisee and often provide for a private right of action ...

Why is franchising important?

It is important that any business looking to expand through franchising retain experienced franchise counsel that can advise the business on the best methods of moving forward and the various laws that apply.

Which states require a FDD?

The states that require a notice be filed with them are Connecticut, Florida, Kentucky, Maine, Nebraska, North Carolina, Oregon, South Carolina, Texas and Utah.

Which states are registered states?

Which states are registration states? The registration states are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. Failure to abide by these states’ laws can result in fines and penalties being imposed by the state and the requirement ...

Do you have to disclose franchise information to prospective investors?

If you are a new franchisor, you must be aware of not only the federal franchise law that requires disclosure of certain information to a prospective investor in a franchise, but you must also be aware of state franchise laws.

What is a franchise agreement?

The franchise agreement that is executed by the franchisor and the franchisee contains, among a lot of other detailed requirements, strict and copious rules and restrictions for the transfer of the franchise rights. Specifically, if you own a franchise – whether it be for burgers, healthcare, fitness, hotels or any other franchise system – there ...

How long do franchise rights last?

Franchisors typically award franchise rights to a franchisee for a minimum of five years and many times quite a bit longer. Most sales of existing franchised units happen in more mature franchise systems rather than in very young ones; though occasionally, a new franchisee realizes early on that they are in over their heads and need to be bailed out – usually by the franchisor.

Why do franchisors have in-house programs?

Some franchisors have in-house programs designed to assist their franchisees in selling their existing units. This is particularly true for a mature brand. One reason for this is that most franchisors award territorial franchises; that is, each franchisee, for as long as it meets minimum operating standards (including sales targets, inspection scores, etc.) has the exclusive right to operate that franchise in a specific territory (subject to the other terms of its franchise agreement). If the franchisor has another qualified candidate for that specific territory, the franchisor is likely to assist its existing franchisee in selling its franchise rights.

What is the importance of knowing what the other fees a buyer will be obliged to pay?

This is particularly pertinent when establishing a price for your business.

Can a franchisor sell a franchise?

Some franchisors will contract with unrelated firms such as Worldwide Business Brokers to sell existing franchise units. This does not eliminate or reduce the resale restrictions in the franchise agreement but only takes the franchisor out of the re-sale business. The existing franchisee that wants to sell and the potential franchisee that wants to buy still need to meet all the requirements outlined in the franchise agreement and the franchisor still needs to approve the sale.

Do you vet a potential buyer before selling a franchise?

All of this means that you would be wise to vet your potential buyers early on – before you even disclose any financial information – by finding out what your franchisor’s requirements are; or enlist the assistance of a business broker with experience in the sale of franchises. Such experienced brokers know the ropes, understand the FDD ( Franchise Disclosure Document) and work with legal counsel that specializes in franchise law, all to your benefit.

Do you have to have the same training for a franchise?

The buyer and its managers will have to meet the same educational requirements, meet the same financial and net worth qualifications, attend the same training classes, go through the same franchisor vetting process, sign a new, current and possibly more onerous franchise agreement and essentially meet all the franchisor’s standards that you did; and maybe more, if those standards have changed which, if your franchise is more than a couple of years old, is probably the case.

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.

Franchise Laws at The Federal Level

The Franchise Disclosure Document

• Federal laws and many state laws place considerable emphasis on the contents and distribution of a franchisor’s disclosure document. Some states require franchisors to register their FDDs annually with the state regulatory agencies. Under the FTC’s Franchise Rule, a franchisor’s FDD must include basic information, including specified contact inform...

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