Owners of existing franchised outlets may get to a point where they want to exit the business. The decision to sell the business could be driven by the wish to retire or to realise the capital gained by building the business.
When selling a franchise business, the franchisee should be aware of the following tips and tools:
- Find out what the typical valuation method is
Most franchises will have an accepted valuation method associated with selling the business, which may even be noted in the franchise agreement. Business valuation methods could include a profit multiple or discounted cash flow model. The nature of the business determines the most appropriate valuation method, and it’s useful to use this as a basis for valuation to determine the selling price of the franchise.
- Review the franchise agreement to understand the contractual requirements of selling the business
Most franchise agreements will have specific requirements stipulated in the franchise agreement regarding the potential sale of the business. An essential requirement is the franchisor’s approval of the buyer of the franchise. It may also be a contractual requirement to notify the franchisor of the intention to sell the business.
- Notify the franchisor of your decision to sell
It’s advisable to notify the franchisor of the intention to sell the business as soon as possible. The franchisor team could assist in various ways, from marketing the franchise opportunity to fast-tracking the application of a potential buyer. The franchisor could even have potential buyers lined up for the area
- Have the business valued by a professional
It makes sense to work with the business’s accountant or another professional to verify the valuation and selling price of the business.
- Advertise the opportunity within the franchise network first
Many franchises allow for multi-unit ownership. The franchisor may prefer the scenario of another franchisee buying the business since there is no need for retraining or vetting the potential franchisee. The seller could work with the franchisor to notify other existing franchisees of the opportunity.
- Ask the franchisor to add the outlet to its existing marketing platforms as an available franchise
Many franchisors will promote their franchises on websites such as Franchiseek. It’s a good idea to ask the franchisor to promote the opportunity on these platforms
- Ensure that all business records and documentation are up to date
Selling a business requires up-to-date financial records and other documentation that proves the business’s regulatory compliance. The seller should ensure that these documents are available and up to date.
- Be aware of regulatory requirements for selling a business
Certain regulatory requirements apply to the selling of a business concern, including advertising in the Government Gazette to notify creditors and other stakeholders of the sale of the business. The seller must ensure that all regulatory requirements are met.
Provided that the franchisee selling the business was compliant with franchise standards, promoted the business in its location and kept accurate records, selling a franchise is an ideal opportunity to create wealth for the franchisee as a reward for hard work. It’s another excellent reason to buy a franchise, as the brand value will significantly impact the business’s valuation and will most likely exceed the gain from selling an independent business.