How to prepare for selling your franchise
If youíre looking to sell your franchise before the end of your contract, thereís a lot of factors to consider. As well as finding investors that are looking for franchises to buy, you need to ensure that youíre getting the best possible deal, that you have the evidence to back up the franchiseís success and justify its price tag, and that youíve communicated your intentions to the franchisor. Each step of the process presents its own challenges and complications, so weíve decided to create a quick guide to the preparations involved in selling a franchise.
Know how you want to exit the franchise
To exit the franchise in a way that best benefits you, it's necessary to have a firm understanding of what your exit options are. Franchise sales are just one way of terminating a contract, and they're often subject to conditions set out by the franchisor in the franchise agreement. This means that you need to know how you want to exit the franchise and begin preparing for that eventuality from an early stage. Poor planning or confusion as to how youíre going to exit the franchise can result in a chaotic process that's difficult to manage, and thatís unlikely to end well.
Understand market conditions
What's happening in the general marketplace can have a significant impact on how much you can expect to sell the franchise for or whether you sell it at all. Sudden changes in market conditions can lead to considerable value being wiped off your business, so itís a good idea to give yourself plenty of time to organise and complete the sale. This will allow you to ride out any drop in value and give the market time to recover. When selling a franchise, youíre trying to get the best price you can. Naturally, this is dependent on several factors that are out of your control. If possible, you want to be in a position where you can realise the full value of your business. In many cases, this will mean biding your time and remaining patient.
Have your financial records in order
If youíre to facilitate a quick and clean sale, itís necessary to have all of your business records in perfect order. Prospective buyers will want to see these records as evidence that your claims represent the reality of the situation. Franchises need to have well ordered and organised records for at least the last two or three years of business. These records also need to be presented according to industry guidelines. Most potential buyers will want to see budgetary, accounting, employment, and profit/loss records before they agree to any sale.
Collaborate with your franchisor
Many franchisors are wary of including the franchisor in any conversations about resales. Itís often the case that franchisees feel as though franchisors will naturally oppose their decision to sell up. While this will be true in some cases, most of the time franchisors will be keen to help you through the process Ė they donít particularly want to work with franchisees who arenít fully invested in the future of the business. Franchisors can assist by providing relevant information, finding a buyer, and helping you to present the sale enticingly and attractively. It's also true that many resales will require the franchisor to sign off and approve it. This is much more likely to happen if you've been open and honest with them and not sprung the decision on them at the last moment.
Keep your staff up to date
A franchise resale can be destabilising and often causes concern and anxiety amongst employees. A new owner might bring in their own team, decide to change things up, or disrupt the established way of doing things. For employees, who have very little, if any, control over the process, this can be incredibly stressful. Keeping your employees up to date on developments and informing them of your intentions gives them time to acclimatise to the idea and prepare for the consequences. When it's peopleís jobs potentially on the line, the least you can do is give them the information they require to plot a course through the transition safely.
Calculate how much your business is worth
If youíre going to sell your franchise, you need to know how much itís worth. While you can perform your own valuation, it is a complicated process that requires some specialist knowledge. In many cases, it's easier, more efficient, and reasonably cost effective to bring in professionals to do the job for you. There is a wealth of factors that will influence the perceived value of your business, so it's crucial that you employ the services of someone who has experience of the franchise model, understands the complexities involved, and that you can trust.
Take professional advice
Finally, the resale process is often lengthy, complicated, and challenging to manage. While it is possible to organise and execute on your own, it will require a great deal of specialist knowledge to realise the most value possible in your business. Consequently, many franchisees decide to utilise professional advice. Typically, this comes in three forms. First, legal advice from your chosen advisor allows you to successfully navigate the complex clauses and conditions in the franchise contract. Second, financial advice from your accountant will ensure that all of your records are in order and youíre aware of the best conditions in which to sell the franchise. Finally, advice from the franchisor will streamline the process, ensure that itís organised in the most efficient way possible, and prevent any last-minute hold-ups.
Thereís a great deal that can go wrong with a franchise resale, but many problems can be averted through careful planning and an understanding of where issues are likely to arise. Ultimately, your aim is to release the maximum value possible from your sale. This requires specialist knowledge, thorough preparations, and a clear plan of action. If you enter into the process without sufficient preparations, itís highly likely that youíll fail to realise the full value of your business.
The Editorial Team, Point Franchise ©
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