how to sell a franchise territory

Here are three simple ways to successfully sell your operating franchise:

• 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. ...
• Step 2: Market Your Franchise for Sale

Full Answer

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 a franchisee territory?

Jeffrey M. Goldstein, a Washington D.C. based franchisee attorney offers some important points regarding a franchisee territory. “When many people hear that they have a “territory,” they assume this means that their territory is exclusive, that is, that no one else within the franchise system will be able to compete against them in their territory.

Can a franchisor sell through other locations?

With the advent of E-commerce, this practice has become more prevalent. The franchisor may retain the right to sell through other locations such as supermarkets and other retail outlets.

What happens if my franchise territory is too small?

A territory that’s too small can restrict the growth of sales. In some franchise programs a neighboring franchisee can be on the border of another franchise territory and vie for customers in that territory.

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...

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.

Can you sell a franchise back to the franchisor?

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 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 much should I sell my 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 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.

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 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 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.

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 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.

Can you sell your McDonald's franchise?

Many franchisors, including McDonald's USA, must approve the transfer of the franchise from the buyer to the seller. Franchisors insist on buyers who have sufficient assets to finance the purchase.

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.

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 much control does a franchise owner have?

It's a very rigid business model. It's certainly not for everyone. That said, it's important to remember that the franchisor controls almost everything. From the products/services you'll be offering, to branding, training programs and even the technology you're allowed to use.

Buyers are Usually Looking for Bigger Territories

Selling a small territory may not attract as many buyers as a larger territory, based on territory size alone. A franchise territory that is not well established or well known in the area may detract from the appeal of the franchise system .

Focus on Face-to-Face Communications with Buyers

Unlike established franchises that are well known by name, new or small franchises often require more effort to sell. When selling a franchise territory, it is important to make the experience more personalized for the potential buyer.

Practice Patience and Be Willing to Negotiate

Selling a franchise territory may not be a quick process, especially for business leaders that have no past experience with franchise sales.

Be Aware of the Laws Pertaining to Franchise Territory Sales

The laws surrounding the sales of franchise territories can be complex and confusing. It is important not to act without a complete understanding of the legal aspects of the transaction to avoid a potential lawsuit following the sale.

Form a Circle of Other Professionals

Having the right partners on board with the sale of the franchise territory can make the process go much more smoothly.

Create and Release Effective Marketing Materials

Effective marketing and franchise information will allow your franchise to stand out to prospective buyers.

Do Not Settle for Less When Choosing a Candidate

It can be tempting to take a check from the first person that offers to purchase the franchise territory. However, this may not be the best option, especially for sellers who have little experience in the industry.

1. Decide How to Define Franchise Territories

This step may seem obvious, but as a franchise system grows it's not uncommon for its territory definitions to change. Territories can be defined using simple metrics such as mileage radius rings, ZIP codes, population size, road boundaries, or some combination of metrics.

2. Identify Future Territory Opportunities

Once you’ve established your franchise territory criteria, you need to identify where future territories can be placed – a critical step in the franchise sales process. If you are using simple metrics such as ZIP codes, you could do this process manually using a mapping platform.

3. Map and Manage Franchise Territories

With your list of current and future territories in place, it’s time to map them. There are a variety of mapping platforms available that can be used to support this process. Look for platforms that allow you to mark territories that are protected and territories that are currently available to avoid a mistake in the sales process.

The Bottom Line

Success in selling a franchise begins with the basics. By investing the time to map your current and potential franchise territories, you can improve the efficiency of your franchise sales process and ultimately reach your franchise growth goals.

Exclusive and non-exclusive territories

The common belief among franchisees is that when they buy a franchise the contract forbids any other franchisee from working in their territory.

Should I choose an exclusive territory?

At first, choosing exclusive territories might seem the best choice but you might need to think twice before making up your mind.

Exclusive territory and protected territory

While some people think that exclusivity and protection are two words with the same meaning that are used interchangeably, you need to know that there are some differences.

Dividing territories

As we said, the main challenge of dividing franchise territories is to well distribute the franchisees in a city or country and ensure enough profits for the franchisees.

Dividing the area into a few big territories

This method involves dividing the region into a small number of territories, each covering a vast area.

Dividing the area proactively

Using this strategy leads to more profits and smaller territories but it also requires more information.

Market considerations

The important thing that you need to understand and keep in mind is that every business has a specific thing to consider when determining the size of the territory.

What to consider when discussing franchise territory?

When discussing the franchisee territory with a franchisor, it’s not unusual for a prospective franchisee to focus on the size of the territory, more than other important considerations. Many franchisees believe the larger their proposed territory, the more they’ll be insulated from fellow franchisees and the greater the potential for increased growth. However, there are a number of issues that should be considered.

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What is a franchisee's territory?

A franchisee’s territory represents the foundation of their business. It’s where their customers, revenue s and increased growth will come from. A territory that’s too small can restrict the growth of sales. In some franchise programs a neighboring franchisee can be on the border of another franchise territory and vie for customers in that territory.

Can a franchisee sell into an open territory?

Some franchisors will allow a franchisee to market or sell into an “open” territory until it’s franchised. Be sure to ask what happens to the customers you gained if the “open” territory is franchised. Some franchisors require franchisees to relinquish the customers, while others allow a franchisee to retain them.

Will the territory be exclusive or protected?

Will the territory be exclusive or protected? Some franchisors will allow a franchisee to market or sell into an “open” territory until it’s franchised. Be sure to ask what happens to the customers you gained if the “open” territory is franchised. Some franchisors require franchisees to relinquish the customers, while others allow a franchisee to retain them.

Can a franchisor sell through other stores?

The franchisor may retain the right to sell through other locations such as supermarket s and other retail outlets. When you and your attorney review the Franchise Disclosure Document, focus on the important questions regarding your proposed territory, how it’s defined and what rights are retained by the franchisee and franchisor.

Can a franchisee be on the border of another franchise?

In some franchise programs a neighboring franchisee can be on the border of another franchise territory and vie for customers in that territory. Jeffrey M. Goldstein, a Washington D.C. based franchisee attorney offers some important points regarding a franchisee territory. “When many people hear that they have a “territory,” they assume this means ...

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.

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.

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.

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?

Decide How to Define Franchise Territories

Identify Future Territory Opportunities

• Once you’ve established your franchise territory criteria, you need to identify where future territories can be placed – a critical step in the franchise sales process. If you are using simple metrics such as ZIP codes, you could do this process manually using a mapping platform. If you are using more complex definitions or don’t have the internal ...

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Map and Manage Franchise Territories

The Bottom Line