how to sell a franchise restaurant

What is a business broker?

Why do you sell upgrades around your restaurant?

Why do potential buyers want to see your financial records?

Why do you lease a restaurant?

What is the process of selling a restaurant?

What is exit strategy?

What do restaurants need to operate?

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Can a franchisee sell their franchise?

For most franchise owners this reward means selling their franchise business to a new owner for the greatest price and at fair terms. But, once the decision to sell your franchise operation is made, it doesn't take long for franchise owners to realize there are multiple paths to consider.

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.

How do I sell my franchise business?

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...

Can you sell a franchise store?

Typical Restrictions on Franchise Sales Include: The purchaser must sign the franchisor's then-current form of franchise agreement. The franchisee must cure all defaults (including payment defaults) under the franchise agreement prior to the sale.

How long does it take to sell a franchise?

The franchise purchasing process — from the search to the purchase — will take three to four months. Typically, it will take another two to six months before you open your doors to customers.

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.

How do you sell a failing franchise?

CONSIDER SELLING THE BUSINESS 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 franchise owner be fired?

While franchisees are not technically employees of a franchise brand, they can be “fired” by franchisors, who reserve the right to terminate their contract “for cause.” This involves ending the relationship based upon a default under the franchise agreement.

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.

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 when a franchisor sells?

Therefore where a franchisor sells or assigns its interest the franchisee will be required to continue operating under the terms of the franchise agreement. Just as franchisees will continue to be bound by the terms of the franchise agreement, the third party will be required to meet its obligations as a franchisor.

How do you get people to buy a franchise?

However, if you follow these simple tips you will be on the right track!Position Your Brand as an Expert in its Domain. ... Make Yourself Appealing to Franchisees. ... Strong Communication with Your Current and Potential Franchisees. ... Use Existing Franchisees as Brand Evangelists. ... Create a Strong Web Presence.More items...•

What happens when a franchisor sells?

Therefore where a franchisor sells or assigns its interest the franchisee will be required to continue operating under the terms of the franchise agreement. Just as franchisees will continue to be bound by the terms of the franchise agreement, the third party will be required to meet its obligations as a franchisor.

Is sale of franchise a capital gain?

1253, which provides that a taxpayer gets capital gains treatment when it sells a franchise unless it has a continuing interest in the franchise after the sale.

How do you calculate franchise profit?

Profit Margin Calculation FormulaeNet Profit = Sale Value – Purchase Value – (MR Expenses + Travel Expenses + Marketing Expenses + Other Expenses)Scheme Calculation. Purchase Value – (Purchase Value * Scheme% / 100 )Cash Discount Calculation. Sale Value – (Sale Value * Cash Discount% / 100) Calculate PTR & PTS.

Can you walk away from a franchise?

There are many reasons why a franchisor or franchisee may not want to renew a franchise agreement. Thankfully for the franchisee, there is nothing to stop them from closing up and walking away when the agreement expires.

How to Sell a Restaurant – 5 Essential Steps - businesses for sale

Selling a restaurant whilst operating can be complex and stressful. Follow these steps to streamline your sale

20 Tips on How to Sell your Restaurant Business Successfully

1. Understand How Much Your Restaurant is Worth. Anyone who is interested in buying your restaurant business will want to know in details the rundown of financials, whether those are positive or negative.

How Do I Value My Restaurant Or Bar, How Do I Sell My Restaurant

HOW DO I VALUE A RESTAURANT OR BAR? Generally there are four different valuation methods used to value a food and beverage business. A. PERCENTAGE OF REVENUE: One method is the percentage of revenue. This method, in my opinion, has some serious flaws and leads to bad valuations.

TOP TEN TIPS FOR SELLING A RESTAURANT BUSINESS

TOP TEN TIPS FOR SELLING A RESTAURANT BUSINESS (Chapter 1 - "Tips for Selling a Restaurant") By Brian Harron, CBB, Restaurant & Bar Specialist . I am often asked by restaurant owners, “What are ...

Why start a restaurant franchise?

Many people enjoy spending time with others while dining on tasty food. Also, nearly half of American adults view dining out as an essential part of their lives, and 64% of adults eat out at least once per week.

What training do franchisees need?

Headquarters training: Franchisees will need to visit your location to learn the basics. Most training programs will include classroom teaching to grasp company culture and history, operations, and reporting. It should also include hands-on training in a mock restaurant

Why do people invest in franchises?

People invest in a franchise because it is a turnkey operation. New franchisees expect to receive successful business out of the box. Your restaurant needs to be this model.

What is franchise ready?

A franchise comes ready to go out of the box — that is one of its most appealing qualities. You will need to put in the effort to account for all aspects of your business before starting new locations.

How many franchises failed between 1991 and 2010?

The Small Business Administration found that nearly 17% of franchises failed between 1991 and 2010. Are you confident that you know how to franchise a restaurant?

Why do you need to empower your franchisees?

But at the same time, you will need to empower your franchisees so that they can handle online concerns specific to their restaurant. Your franchise business model needs to include tactics and community management.

What happens if you don't have proper documentation for a restaurant?

Without proper documentation, you can end up in dispute or lose the rights to certain aspects of your business.

Why do we need organized records?

Organized records are again the key here, along with preplanning to ensure that inspections are done on a timely basis and any recertification or permit renewals are handled on schedule.

What do prospective buyers want to see?

While you may be perfectly fine keeping track of your bills on a spreadsheet and paying your employees with cash out of the register, a prospective buyer is going to want to see detailed, confirmable figures, preferably in standardized formats like a balance sheet and/or profit and loss statement.

How to list a restaurant on the market?

Once you’re ready to put the restaurant on the market, unless you have a buyer already lined up who’s likely to follow through, your best bet is to list the restaurant through an experienced business broker. You could also use a listing service like BusinessesforSale .com, or combine the two methods.

What to know before putting a restaurant on the market?

Before putting the restaurant on the market, make sure that anyone who passes by or walks in is impressed with the cleanliness and upkeep.

What to consider when buying a restaurant?

Another important factor that most prospective buyers will be concerned about when considering your restaurant is the current state of the lease, the appropriate permits on the property and equipment, the liquor license (if appropriate) and the resultsmost recent health inspections.

What does it mean when a company wants to make sure that what they're purchasing is in good working order?

Or, if spending is going to be required, they want to be able to figure the cost into the sale.

How long is the free trial for selling a business?

Ready to sell your business? You can sign up for a 20 day free trial and find out who's interested in your business here.

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 about franchising your restaurant?

The third option noted above — growth via franchising — offers the benefits of starting with a successful brand and reputation while avoiding the heavy financial cost and effort required to expand on your own:

Is your restaurant run on duplicatable systems?

Just launching different locations with the same name and color scheme isn’t enough, though. Successful franchises are built on easily duplicatable systems that have provided a solid foundation for consistent success. What does that mean?

Is there a lot of independent competition?

The first requirement successful franchises have in common is a competitive — even crowded — marketplace filled with many independent operators.

Can you commit to providing adequate training and support?

Even the best, most duplicatable food preparation and delivery system isn’t going to automatically provide a successful franchise operation if new owners and employees have to struggle to learn how to make it work.

What was the secret to the success of the original McDonald's restaurant?

Let’s look again at Ray Kroc and McDonald’s: The secret to the success of the original McDonald’s restaurant was an assembly line-style food preparation system (which the McDonald brothers called the “Speedee Service System”).

What was Kroc's strategy after McDonald's?

Kroc’s entire strategy was about the systems and their ability to create consistency in quality, taste, and price.

Why is McDonald's a compelling buy?

The tens of thousands of entrepreneurs who became McDonald’s franchisees over the last 60 years generally agree: the system is such a compelling buy because it’s set up to be a turnkey operation from day one. Every franchisee receives everything they need:

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.

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 ...

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.

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.

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.

Do franchisors pay transfer fees?

As far as I know, all franchisors require a transfer fee to be paid to the franchisor when a franchise is transferred from one individual or entity to another. This fee is meant to offset the franchisor’s internal administrative costs of the transfer and can be many thousands of dollars. Who pays – the seller or the buyer – is a point ...

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.

What is a business broker?

A business broker who specializes in restaurants has a network of contacts and potential buyers to tap into. Even if this isn’t your first restaurant, you likely don’t have the connections a broker has. Brokers know who to speak to and where to look for buyers.

Why do you sell upgrades around your restaurant?

Why? Because the presentation of your restaurant is the first thing a potential buyer will notice when they visit your location.

Why do potential buyers want to see your financial records?

When potential buyers engage in discussions with you , they’ll want to see your financial records. This helps them form more accurate forward-looking revenue projections, which is central to their interest in buying a business.

Why do you lease a restaurant?

Leasing lets you use your existing capital to upgrade your restaurant interior, exterior, and market your new business. It also reduces risk because if your business isn’t successful, you won’t have to sell a property. Typically, restauranteurs who purchase a space have a track record of success and extensive experience in the restaurant industry.

What is the process of selling a restaurant?

Selling a restaurant is complex and requires lots of documentation, up-to-date reporting and paperwork. The buyer needs all of this to make an informed decision and a savvy buyer will ask for it. It’s important to have all this documentation in order and ready to hand out to potential buyers.

What is exit strategy?

Exit strategies are roadmaps to follow that eliminate the stress of later questioning whether or not you should sell.

What do restaurants need to operate?

Restaurants need technology and software to operate. You don’t want to manually track inventory or write receipts. Instead acquire a restaurant point of sale (POS) system that automates these and other processes, such as the checkout process.