how do you sell a franchise business

Can you sell a franchised business?

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 much do 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.

How do u 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 a franchisee sell their franchise?

In either case, the franchisee's right to sell the franchise will be governed by the transfer provisions in their franchise agreement. Most franchise agreements contain strict limitations on the franchisee's ability to sell their franchised business.

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.

Can I sell the franchise I bought?

A franchise is an investment. So long as you have a franchise agreement in place you will have the right to sell your business and the franchisor cannot unreasonably withhold their consent to the sale. Like any business, the more profitable and successful your business is, the higher the price you can sell it for.

How much does a franchise owner make?

The Numbers According to a survey done by Franchise Business Review involving 28,500 franchise owners, the average pre-tax annual income of franchise owners is about 80,000 dollars.

How do you sell a failing franchise?

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.

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.

How much is a franchise transfer fee?

Franchisors generally charge a transfer fee of 25% to 50% of the initial franchise fee. The legal costs for these reviews range from $500 to $1,500. This is paid to your lawyer. The seller will pay you a transfer fee that should cover this cost as well as the cost for training of the new franchisee.

What is a franchise 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.

How much does a franchise owner make a year?

According to a survey done by Franchise Business Review involving 28,500 franchise owners, the average pre-tax annual income of franchise owners is about 80,000 dollars.

How much does a McDonald's franchise cost?

McDonald's franchisee applicants must have a minimum of $500,000 available in liquid assets and pay a $45,000 franchise fee. Those looking to launch a new McDonald's franchise can expect to shell out between $1,314,500 and $2,306,500. Existing franchise prices can cost upwards of $1 million or more.

How profitable is owning a franchise?

Buying a franchise might seem like easy money, but those royalties and fees will quickly cut into profit margins. The majority of franchise owners earn less than $50,000 per year.

How do franchise owners get paid?

How do franchise owners get paid? Franchise owners can pay themselves a salary or depending on their business entity, they may be able to take a draw from their accumulated equity.

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 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 ...

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, ...

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 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.

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.

How to sell a franchise?

You also need to prepare to sell your franchise before you actually place it on the market. Included among the preparations you will need to do are establishing the value of the franchise, setting a price, compiling financial information, notifying key employees (if necessary), and putting together a sales packet.

How to promote a franchise?

Make certain to abundantly promote your franchise through every possible avenue. If you need help with this, you might even want to consider listing it with an agent. Also take some time to practice your sales pitch. Recruit a few friends to critique your pitch before you "go live" with actual buyers.

How to keep your franchisor informed?

It's important to keep your franchisor informed about your plans to sell the franchise at the very beginning of the sales process. Many franchisors have rules regulating franchise sales. These rules should have been listed in the franchise contract you signed when you bought the franchise. Go back over those rules with the franchisor to make sure everyone is on the same page.

Can a franchisor sell a franchise?

Your franchisor might also be able to offer assistance in selling your franchise. Sometimes franchisors are aware of potential buyers who are interested in a specific territory and are looking for a relatively "turnkey" operation.

Is it necessary to know the market before you list your franchise?

It is absolutely imperative to have a basic understanding of the market before you list your franchise. How much have similar operations sold for recently? Is the market hot or cold right now? What type of person is most likely to buy a franchise like yours?

Do you have to prepare for a franchise sale?

Be aware that some franchise sales require more upfront preparation than others. Again, talk to your franchisor for specific advice about what you may need to do for the sale of your franchise.

What are the tax consequences of selling a business?

Ultimately, the tax consequences of selling a business depend on a variety of factors, including the nature and profitability of the business, the type of assets that it holds, the tax classification of the business, and your tax basis in the entity. Because the tax consequences can significantly affect the amount of money ...

What happens when a partnership is sold?

From the buyer’s perspective, whenever an unrelated buyer acquires all outstanding partnership interests, there is a deemed liquidation of the partnership. The partnership is deemed to make a liquidating distribution of its assets to the original partners and is deemed to have acquired, by purchase, all of the former partnership’s assets. The buyer’s basis in the assets is the purchase price paid by the buyer, and the buyer’s holding period for the assets begins on the day immediately following the date of sale. In most cases involving a third party sale, therefore, there is no significant tax difference to the buyer whether the sale of the partnership’s business is viewed as the sale of assets or the sale of the various partnership interests.

What is asset sale?

Sale of Assets. In an asset sale (as the name implies), the owner of the business sells the business’ assets. Although the parties typically negotiate a single sales price for the business as a going concern, in reality, the seller is selling the individual assets of the business, including business goodwill.

How is gain allocated in an S corporation?

In an S corporation, gain or loss is allocated among the shareholders according to their pro rata share of ownership in the corporation. In an asset sale, the buyer acquires a cost basis in each asset purchased.

Is a partnership sale considered capital asset?

Generally speaking, the sale of partner’s interest in a partnership is considered the sale of a capital asset. IRC §751, however, provides that the portion of the sales price attributable to the partner’s interest in (1) unrealized receivables of the partnership, or (2) inventory items of the partnership (sometimes referred to as “hot assets”) be taxed as ordinary income. Unrealized receivables include accounts receivable and other contractual rights to receive payment for goods delivered or services rendered, depreciation recapture under IRC §§1245 and 1250 (as described above), and other types of sales.

Why do you sell your business?

Selling the business yourself allows you to save money and avoid paying a broker's commission. It's also the best route when the sale is to a trusted family member or current employee.

Who to work with to finance a house sale?

If you plan to finance the sale, work out the details with an accountant or lawyer so you can reach an agreement with the buyer.

Why do you need a broker for a business sale?

In other circumstances, a broker can help free up time for you to keep the business up and running, or keep the sale quiet and get the highest price (because the broker will want to maximize his or her commission).

How long does it take to find a buyer for a business?

Finding a Buyer. A business sale may take between six months and two years according to SCORE, a nonprofit association for entrepreneurs and partners of the U.S. Small Business Administration. Finding the right buyer can be a challenge. Try not to limit your advertising, and you'll attract more potential buyers.

What should a potential buyer sign?

Put any agreements in writing. The potential buyers should sign a nondisclosure/ confidentiality agreement to protect your information.

How much does a broker charge for a business?

If you go through a business broker, and your business is under $1 million, the broker's commission is likely 10% to 12%. Other fees that can crop up include attorney fees, marketing fees, the costs of making any cosmetic or more substantial upgrades to your business so as to make it more sellable. There are also fees that may come up if you are transferring a lease to the new owner of your business. 2 

How to invest money from a home sale?

Take some time—at least a few months—before spending the profits from the sale. Create a plan outlining your financial goals, and learn about any tax consequences associated with the sudden wealth. Speak with a financial professional to determine how you want to invest the money and focus on long-term benefits, such as getting out of debt and saving for retirement .

What is a franchise flipper?

Whether you are simply gathering information about selling your franchise or need to sell a franchise business quickly, Franchise Flippers can help you determine and execute the best strategy for selling your franchise so you can find the right buyer when the time is right .

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Is selling a franchise a big decision?

Selling a franchise is a big decision. Franchise Flippers offers a free phone consultation to discuss if, when, and how to sell a franchise business.

Rules and Restrictions

Benefits

Tips For The Sale

Post-Sale Obligations