Preparing to Sell: Franchise Resale

Preparing to Sell: Franchise Resale

In 2018, there were just shy of 760,000 franchises in the United States alone. This rapid growth rate of 1.9% increased the employment rate in franchising by 3.7% adding 8.1 million workers.   

When a small business begins to do well in its local neighborhood, a business owner may find that franchising is the appropriate next entrepreneurial step. That being said, as the owner of a franchise, you may find that you are ready to take a step back or would like to invest your profit and time into a new project. If you have come to the decision to sell your franchise, there are a few steps to take before, during, and at the end of the selling process. Transworld Business Advisors Houston has three simple steps you should follow when preparing your franchise for resale.

1. Contact Your Franchisor

The first step before preparing to place your franchise business for sale is to contact your franchisor. There are a few questions you should be prepared to ask and take notes regarding the responses.

a. What are your transfer fees when I sell my franchise?

The fees are likely found in your franchise agreement, but it does not hurt to be on the same page as your franchisor. In some cases, there is no franchise fee, or it is waived.

b. What qualifications should I be looking for in a franchise buyer?

Before you begin negotiations with a potential buyer, your franchisor must approve of them. These requirements vary from franchisor to franchisor, but in many cases, qualifications include credit score, net worth, and experience.

c. How do you value my business?

This is an important question because you and your franchisor should agree on the asking price. More often than not, your franchisor likely calculates your value by multiplying your gross revenue or cash flow by a certain variable.  Good know what valuation tools they will use.

2. Market Your Franchise

When it comes time to list and market your franchise for sale, you have two options. Either your franchisor will aggressively market it for you, or you can hire a broker. The key with a broker is to choose one familiar with selling a business and not just a franchise broker more accustomed to helping open or start new franchises. Transworld Business Advisors Houston has brokers who are equipped to help you prepare your franchise for a sale and find the right buyer both you and your franchisor can agree on.

3. Negotiations and Closing

Because you are selling a franchise and not an independent business, your franchisor may be more involved in the sale. In addition, the buyer is required to receive a copy of the Franchise Disclosure Document (FDD) two weeks (14 days) prior to becoming the owner of the franchise. On top of that, a franchisor may require the new buyer to attend certain training sessions to be prepared to become a part of the franchise. A franchisor’s actual involvement in a sale can vary case by case, but a broker can walk you through the process no matter how hands-on your specific franchisor might be.

In many cases, selling an operating franchise has a higher success rate than an independently owned business. This is likely due to the fact that a buyer is more likely to believe a franchise is more valuable due to its support from franchisors and the client base it has already established.

No matter where you might find yourself in the selling process, Transworld Houston’s team of brokers are equipped to help you prepare and make the right decision for you, the franchisor and the buyer. Contact Transworld Business Advisors Houston today to schedule your first consultation!