As a franchisee, there may come a time when your franchise becomes so successful that it simply makes financial sense to sell it. That, or you may find that your franchise has never truly gotten off the ground, causing you to decide to leave the business altogether. In any case, it’s clear that selling your business is in order, but a franchise sale is often more complex than it appears.
Before you sell, consider the following points:
Take a Look at the Franchise Disclosure Document
The franchisor will send a Franchise Disclosure Document (FDD) directly to the Buyer of this franchise business, which contains valuable information about the prospective franchisee’s obligations, should they decide to purchase from you. The Buyer is not allowed to sign the FDD until he/she has reviewed this FDD contract for at least 14 days by law. Think of the FDD as an outline of the terms and conditions of operating the franchise.
The Franchisee Gets a Discovery Day First
Because the franchisor is so involved, selling a franchise is different from the typical process of selling your business. Before buying, the prospective franchisee will attend a “Discovery Day” with the franchisor, an event that helps the buyer gain in-depth knowledge of the franchise and its functions while giving the franchise a chance to vet the prospective franchisee.
Likewise, a Discovery Day lets the buyer get a sense of the franchise and decide whether the business opportunity is right for them. If all goes well, the buyer will likely be given a week or two of training to learn how to fully operate the business.
There’s a Transfer Fee
For a franchise to change hands, the franchisor must invest a good bit of both time and effort. As such, there will be a transfer fee, usually valued between 25% and 50% of the initial franchise fee. It often proves to be a hefty sum, most often between figures of $20,000 and $50,000. Some franchisors require the seller or the buyer to pay this fee. Some franchises want both parties to split the transfer fee so p-lease read about this in the FDD or ask the Franchisor’s representative.
People Either Love or Hate the Idea of Buying a Franchise
The term “franchise” often appears in the title of a business, and it serves as a great way to be upfront, given that some potential buyers simply won’t be interested in buying a franchise. Still, for would-be buyers, a franchise is a major draw.
The Franchisor Might Restrict Your Sale
If you own a franchise and are selling your business, you aren’t the only one who has to approve potential buyers. The franchisor also has a say. Major retailers won’t sell franchises to just anyone: They need to verify that any potential franchisees have the necessary funds to pay for the business. They also need to ensure that the franchisee can put in the time to learn how to successfully run the business.
You May Have Obligations After Exiting
Before selling your business, familiarize yourself with any post-termination obligations. Many franchises, for instance, will prohibit you from opening a competing business in the two years following your departure from your initial company. Many also don’t allow you to try to lure your previous customer base to any new business you do start after the two years are up. If you violate any of these requirements, you might face significant financial penalties and even legal action.
Need Help Navigating a Franchise Sale? We’re Here to Help
At Sunbelt Business Brokers, we work exclusively with small and medium business owners to help them sell their businesses. We maintain a database of active buyers to help you quickly and easily move on to your next business venture. If you’re thinking about selling your business, check out our free business valuation calculator or contact a team member today!