Saying Goodbye to Your Franchise

07/04/2018 17:00 | Start a business

Selling your franchise and saying goodbye

When you start your franchising journey, you won't give much thought to how it's all going to end. But at some point, it will be time to say goodbye to your franchise business. However, very often you can be so focused on operating and growing your business, that you fail to plan your exit effectively.

Typically, your franchise agreement will last for a term of five years. Although some are for more extended periods, most are renewable at the end of the term. But dont wait until the end of your franchise agreement term to start preparing to leave. The key to successfully selling a franchise is to have a robust exit strategy in place as early as possible.

Here are some steps to selling a franchise:

Have a plan

Getting your franchise ready for resale is crucial to make sure that your business is viewed as an appealing proposition for potential buyers. You will have worked hard to develop and grow your business and demonstrating the value of your franchise means that you have the best chance of getting a reasonable price when you sell it. You can't leave this to luck though. You need to have a plan in place to maximise the value well before the sales process starts.

Plan early

Other than when you bought your business, selling a franchise is one of the most important deals you'll ever make, and so it's essential that you get it right. Start to give some thought to how you're going to leave your franchise as soon as you've started it. This may seem unusual, but the more time you give yourself to prepare the better chance you have of achieving a good price.

Inform the franchisor

The franchisor and franchisee relationship is one that should be based on trust and honesty. This means that as soon as you have plans to sell your franchise, you should inform the franchisor. As with franchised business, the franchisor will have the final say on whether a buyer would make an appropriate franchisee and so should be engaged as soon as possible.

You may find the perfect person to buy your franchise with no intervention from the franchisor, but very often the franchisor will have been approached by interested parties and will have a list of prospective franchisees. If the franchisor does introduce you to a lead that ends up buying the franchise they may charge a fee for doing so. Either way, the new franchisee will have to go through the same recruitment process that you did when you bought the franchise to make sure that they're a good fit for the brand.

Maximise the value of your franchise

To appear as attractive as possible to prospective buyers, your franchise must be able to demonstrate strong financial growth. You may need to make some changes in your business to achieve this, which is why its important to start your planning as early as possible so that any adjustments to sales strategies can be implemented in plenty of time before the sale.

When a buyer is doing their due diligence, they will look at more than just the financials to determine whether the franchise is a worth its value. Factors such as employee satisfaction and turnover are also taken into consideration. If the workforce is happy and remains loyal to the business, its a good indication that the franchise is performing well.

Be prepared

Any potential buyer will need to be given lots of information about your franchise before a price can be decided upon. Franchisor and franchisee must prepare the relevant information in the form of a Prospectus of Sale document and should consist of:

  • A description of the franchise
  • History of the business
  • Details of any property
  • Details of employees
  • Details of any equipment owned or leased
  • Copies of 3 years of accounts and up to date management accounts
  • A realistic asking price

The Prospectus is your sales document, so it is in your best interests to invest time and effort into making it the best it can be. However, while the ultimate aim of the Prospectus is to promote your business, it should also be accurate and not misleading.

Value your franchise

The financial standing of your franchise when you decide to sell is the primary factor in determining the value of your business. Present, past and future profits and cash flow are all considered. Along with this, the potential for your franchises growth is a factor that influences the worth of your business.

There are several ways that your franchise can be valued. The most commonly used is to base the value of a business on a multiple of future earnings. If you can demonstrate that your franchise has a history of generating sustainable profits, it will be valued at a multiple of earnings. Any quirks or anomalies are taken into consideration, and a "normalised" version of the profit is calculated. There are other methods of valuation that a prospective buyer can employ to achieve a range of prices that they think your franchise is worth. The final price will undoubtedly be decided upon following a period of negotiation.

The whole process of selling a franchise can be a worrying time. Most franchisees will only buy and sell a franchise once during their franchising journey, and so it can be a stressful time. But before your franchise agreement comes to an end, its important to remember that you still need to continue to focus on managing and developing your business throughout the sales process. This can make it demanding, both physically and mentally.

The key to the successful sale of your franchise is to have a plan in place as early as possible, to keep the franchisor informed and engaged throughout the process, and to maximise the value of your business to get the best possible price for your franchise.

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