As a franchisee, there may come a time when you wish to sell your franchise outlet. You may want to decrease your work load or move onto a different business opportunity or franchise. This article will outline the steps you should take when selling your franchise business.
1. Discuss With Your Franchisor
As soon as you start seriously contemplating your franchise location, you should inform your franchisor. There may be certain requirements in your franchise agreement that you have to meet, such as:
- gaining pre-approval from your franchisor on the purchaser of your franchise;
- giving the franchisor a right to purchase before you advertise the franchise to other purchasers;
- paying a transfer fee to transfer the franchise agreement to a new purchaser; or
- entering into a deed of termination to cancel your franchise agreement.
It is crucial that you comply with these rules when you sell your franchise.
There may be requirements set out by your franchisor or in your franchise agreement that sway you from selling your franchise.
For example, the franchise agreement may have a restraint of trade clause. This clause prohibits you from competing with:
- your franchisor;
- other franchisees; and
- the franchise system as a whole for a certain period.
If your agreement does contain this provision, you may not be able to:
- enter into a new franchise; or
- buy a business in a territory close to an existing franchise location.
Your franchisor may be able to help you sell your franchise. They may have a list of prospective franchisees that you can work through to find your preferred buyer.
2. Prepare the Franchise For Sale
After talking with your franchisor and looking through your franchise agreement, you will have to prepare your franchise for sale. This process requires you to prepare:
- the franchise premises for sale; and
- any relevant documentation.
Preparing the Premises
You will have to ensure that your premises, and any equipment or vehicles included in the sale, are in good condition and presented in the best way possible. Also, check there are no encumbrances on the fit out or plant and equipment by checking the PPS register. If there are loans that are secured by the equipment or fit out, these will need to be paid out with part of the settlement proceeds on completion.
Preparing Any Relevant Paperwork
You will have to provide certain documents to your buyer, franchisor and any professionals that assist you in selling your franchise. The following documents should be up to date and readily available:
- your franchise’s financial records;
- the franchise agreement;
- your lease (if you rent your franchise premises);
- an asset list of the physical items that will be sold alongside your franchise; and
- your employment agreements and employment records (if your franchise has employees).
3. Price Your Franchise
Before you start looking to find a buyer for your franchise, you will need to determine an approximate sale price. This price may be subject to change once you begin negotiations with potential buyers.
Your sale price will need to reflect the:
- market worth of your business;
- physical items that are being sold alongside your franchise, such as stock and other tangible assets; and
- intangible assets that accompany purchasing your franchise. One such asset is goodwill or the health of your business. A buyer will expect to pay more for an established business that has a good reputation and a high turnover.
You should seek assistance in determining your sale price from:
- a chartered accountant who specialises in franchising;
- a business broker who specialises in selling franchises;
- fellow franchisees who have sold their franchise recently. However, even if the franchisee works in your franchise, the price will vary; and
- your franchisor.
4. Find a Buyer
Once you have prepared your franchise for sale and determined an approximate price, you will have to put thought into who you want to buy your franchise. You will need to keep in mind:
- any special qualifications required for running your franchise;
- traits that your franchisor prefers in their franchisees; and
- whether you want the buyer to employ your franchise’s employees.
You can now begin to advertise your franchise for sale. It is best practice to talk with your franchisor to determine the best method for advertising your franchise.
Key Takeaways
As a franchisee, there will come a time when you wish to sell your franchise. If you do wish to sell your franchise, you should:
- inform your franchisor;
- look through your franchise agreement to ensure that you have followed any requirements or rules;
- prepared your franchise premises and paperwork for sale;
- check the PPS register to ensure there are no encumbrances on the fit out or equipment (or contact the lender if there are)
- set an appropriate sale price; and
- find a suitable buyer.
If you need assistance with selling your franchise, our experienced franchising lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
Selling a franchise refers to the franchisee (the owner of a franchise outlet) selling the location to a buyer or the franchisor.
You may be able to sell your franchise back to the franchisor. You may be required to do so under your franchise agreement.
If you do wish to sell your franchise, you should inform your franchisor, look through your franchise agreement to ensure that you have followed any requirements or rules, prepared your franchise premises and paperwork for sale, set an appropriate sale price and find a suitable buyer.
Your sale price will need to reflect the market worth of your business, the physical items that are being sold alongside your franchise, such as stock and other tangible assets and the intangible assets that accompany purchasing your franchise. One such asset is goodwill, or the health of your business. A buyer will expect to pay more for an established business that has a good reputation and a high turnover.
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