Full Answer
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.
How long does it take to sell a franchise?
Most sales involving franchise businesses can take anywhere from 2 to 3 months to be completed. This is good because you’ll want to use this time to prepare your budget for leaving the business.
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 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.
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 is more important than what a franchise is expected to cost?
Probably more important than what a franchise is expected to cost is how much money can be expected as a return on the investment.
What item must a franchisor include sales and earnings data?
If the franchisor decides to include this info, it must be contained in Item 19. Here are some things to think about if you are evaluating sales and earnings data:
What happens if you don't report your franchise?
If you don’t, you may be waiving any right to contest the earnings representations that were made to you and that you used to make your decision to buy.
Why are franchisees losing money?
An outlet with high gross sales on paper might be losing money because of high overhead, rent and other expenses.
What is item 2 in franchise?
Item 2 identifies the executives in the business and their business backgrounds. You can pay attention to things like how long they have been involved in the franchise business as well as their experience with this particular franchise.
What is marketing fee?
Marketing/Advertising Fee: Percentage of sales that must be sent on advertising. Sometimes companies will break out what you send to the franchisor or spend on local marketing activities.
What are the things that a franchsor may limit?
A good list of things that the franchsor may limit include: suppliers from whom you purchase goods. the goods or services you may offer for sale. where an to whom you can sell goods and services. your use to use the internet to sell goods or services inside and outside of your territory.
Who wrote the franchise chatter guide?
This Franchise Chatter Guide on how to value a business was written by Daniel Slone.
How long is FF&E depreciated?
No buyer would pay that for it. So how to value it? Per IRS rules, most FF&E of the type found in restaurants is depreciated over seven years . That means you can deduct one-seventh of the original purchase price per year of age to arrive at a fair market value (FMV) that the IRS would not likely challenge. Obviously, if the FF&E is seven or more years old, it has no value for transaction purposes.
How many restaurants have been sold by sellingrestaurants?
We at SellingRestaurants have sold over 600 restaurants during a tough economy because we know how to market and value restaurants resulting in getting you top dollar! We've done it over 600 times since 2004.
What is the value of a business if the percentage factor is 30%?
For example, if the business revenues are $1,000,000 and the percentage factor is 30%, then the business value is $300,000 . This method is used when financials are not readily available and/or are not accurate.
Why do buyers pay more for the same space?
Some buyers will pay more for the same space because they may see the value in a lease or location while others may see that they have too much improvements to make to convert to their existing concept.
What is a seller's discretionary income?
B. SELLER'S DISCRETIONARY INCOME (SDI): This method takes education, financial statement reading skills, and skills to accurately apply the accounting concepts. This is the standard banks use to give loans. Few brokers have the training and talent to accurately perform this analysis.
Rules and Restrictions
- The important thing to understand about franchise businesses is that they all must abide by the rules and standards set forth by the franchisors. 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. ...
Benefits
- The main benefit of selling a franchise business is that you’ll likely have a lot of interested buyers already available to choose from. Since franchises are usually attached to companies with great reputations, buyers are always eager to purchase them because they figure it will be easy to make them successful and profitable businesses. Often times, franchise businesses are in central loc…
Tips For The Sale
- Studies have shown that franchise owners tend to get higher prices for their franchise businesses when they sell them early on. Newer listings will motivate potential buyers into grabbing a hold of...
- Before you go ahead and hire a broker to list your franchise for sale, get an appraisal on the value of your business first. That way, you’ll know the right selling price to ask for. This is not …
- Studies have shown that franchise owners tend to get higher prices for their franchise businesses when they sell them early on. Newer listings will motivate potential buyers into grabbing a hold of...
- Before you go ahead and hire a broker to list your franchise for sale, get an appraisal on the value of your business first. That way, you’ll know the right selling price to ask for. This is not on...
- Another very important thing to remember is to not neglect the operation of your business. Even though it is for sale on the market, that doesn’t mean you can just forget about it and only focus on...
- Of course, you should keep the franchisor in the loop about what is going on with your sale. Y…
Post-Sale Obligations
- 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. Most franchise agreements have non-solicitation provisions and non-competition agreements which outline that franchisee…