June 2, 2020  
 
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Selling Specific Business Types

 

Selling a Franchise

Franchise buyers often go direct to the franchisor to buy a franchise. But another route is to purchase a franchise from a franchisee that wants out. Here's how to sell your franchise for top dollar.

Buying a franchise is an attractive entrance ramp to small business ownership.

Instead of rolling the dice on branding campaigns and spending months creating efficient workflows, franchises give entrepreneurs a highly visible and latchkey business opportunity.

Selling a franchise is similar to selling any other small business with a few, important differences. One of the reasons a franchise sales is unique is because the business has been standardized, making it easier for a new owner to come into the business and start earning profits right out of the gate. But the downside is that standardization can also be a turn off for buyers who want the freedom to create their own business model and branding strategy.

Although franchises continue to be popular with small business buyers, sellers need to understand the nuances of the marketplace and follow a selling strategy that address fundamental business-for-sale concepts as well as franchise-specific sale requirements.

  • Contact your franchisor. The first step in selling a franchise is to contact your franchisor. Your franchise agreement spells out rules and guidelines for the sale of the business. Franchisors commonly reserve the right to approve buyers and a franchise transfer fee may also apply.
  • Conduct thorough sale preparation. Selling a franchise is similar to selling any other business from the standpoint that you'll need to conduct thorough preparations before you look for buyers. Getting the best possible price means planning months or even years in advance for the sale, regardless of any assistance you receive from the franchisor at the time of sale.
  • Perform a normal valuation process. It's also important to perform a typical valuation process using the valuation methods that are best suited to your industry and business type. We recommend getting an independent, third party valuation from a professional appraiser rather than relying exclusively on a valuation from the franchisor or internal resources.
  • Consider franchise value. When you purchased the franchise, you paid upfront and/or monthly franchise fees. If the franchise has grown or if you have improved the franchise's local market position, it's not unreasonable to expect a dividend on your investment at the time of sale. However, your dividend may be reduced by the amount of transfer fees or other requirements imposed by the franchisor when the business changes hands.
  • Solicit assistance. One of the perks of a franchised business is that franchisors offer a wide range of benefits to their franchisees, including assistance when it's time to sell the business. Franchisors often have buyers waiting in the wings, so don't hesitate to solicit the assistance of your franchisor during the process.

Related Articles

Want to learn more about this topic? If so, you will enjoy these articles:

Selling a Retail Store
Selling a Manufacturing Business
Selling An Online Business


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