Can You Sell a Franchise Business?

You can indeed sell your franchise business, but there are specific steps to follow due to the rules outlined in your contract with the franchisor.

The process of selling starts with a conversation with the main company, addressing any issues related to your current agreement, obtaining their approval, and preparing your financial details for potential buyers.

Next, you’ll need to set a fair price—not too high or too low, but just right based on your initial investment (for instance, McDonald’s requires around $2.5 million to start). Finding an interested buyer may involve reaching out to your franchisor for assistance or hiring a specialist in franchise sales.

However, be cautious! There are pitfalls to avoid, such as overpricing or neglecting necessary paperwork, which can delay or derail a sale.

This article will guide you through everything: how to prepare, price your franchise correctly, and find the ideal buyer while steering clear of common mistakes. Ready? Let’s dive in.

Key Takeaways

• You can sell a franchise business, but you must follow specific rules and get approval from the franchisor.
• Setting the right price is crucial and depends on your franchise’s performance and factors like location.
• When selling, you have options: selling it back to the franchisor, selling to a new buyer, or transferring it to another franchisee.
• Being transparent with potential buyers about all aspects of the business fosters trust and aids in the sale.
• Ensure all your documentation is complete and complies with the franchisor’s guidelines to prevent issues during the sale.

Can You Sell a Franchise Business?

Yes, you can sell a franchise business. If you own one of the 805,500 franchise businesses in the U.S., transferring ownership is a viable option.

The franchising sector is vast, with an estimated revenue of around $860 billion by 2023, employing approximately 8.7 million people across various industries.

By selling your franchise, you allow someone else to take over operations while still benefiting from the established brand.

The process of transferring ownership requires compliance with the regulations set by the franchisor, who wants to ensure that the new owner can successfully run the business.

So, if you’re wondering, “How much can I sell my franchise for?” remember that it depends on several factors, including your business’s performance and its industry.

Setting the Right Price for Your Franchise

Finding the right price for your franchise is crucial. It ensures you secure a fair deal while attracting the right buyers.

Importance of accurate valuation

Getting the price right when selling your franchise is essential. If you set it too high, potential buyers may lose interest. Conversely, if it’s too low, you risk losing money. An accurate valuation helps you pinpoint that ideal price where both parties feel satisfied.

To achieve this, you need current statistics, as business numbers can fluctuate rapidly. This ensures your franchise is sold for its true worth rather than an arbitrary figure.

Establishing this price begins with a thorough understanding of your earnings and how your branch performs relative to others. Every sale, expense, and local market detail contributes to determining a fair price.

Steps to Selling a Franchise Business

Selling a franchise business involves several straightforward steps, starting with notifying the franchisor about your intention to sell and obtaining their approval. You also need to prepare your financial and operational records for potential buyers.

Notify the franchisor of your intention to sell

It’s essential to inform the franchisor if you plan to sell your franchise. This step is crucial; failing to do so could violate your franchise agreement. The rules regarding the sale are outlined in this agreement.

Franchisors have specific steps to follow when selling. They also carefully evaluate the new buyer. Communicating with the franchisor helps ensure a smooth process. Understanding the franchisor’s expectations can clarify what is needed for the sale.

Resolve any defaults in the franchise agreement

Before selling, it’s crucial to address any violations of the franchise agreement. This step is essential to ensure that both you and the franchisor are on the same page.

If there are any outstanding fees or overdue reports, make sure to resolve them. This helps prevent issues during the sale.

Next, you need to obtain the franchisor’s approval to sell your business.

Obtain consent from the franchisor

You must request permission from the franchisor to sell your franchise. This step is vital, as the franchisor’s approval is necessary before proceeding. They scrutinize this process closely because their brand and business model are involved. 

Securing their approval indicates that they trust the new owner will maintain the standards. However, it’s not just a straightforward yes or no. The franchisor may want to meet the prospective buyer or review their business plans. They ensure that everything aligns with the existing franchise agreement.

Get your business broker/advisory team involved

At this point, you need to get the expertise of a business broker/advisory firm because they will guide you throughout the process from assessing the business valuation, preparing the documents needed and finding potential buyers in their network, all the way to the exit and closing the sale.

Prepare financial and operational records for buyers

Prepare your financial and operational records for potential buyers. This involves compiling all sales, expenses, and profit information, as well as details on daily business operations. These documents provide buyers with insight into the business’s performance.

Include balance sheets, cash flow statements, and tax returns from previous years in your records. Also, provide a list of assets, such as equipment or inventory, that will be included in the sale. This information helps buyers understand what they are acquiring.

Ensure that all documentation is clear and current. Buyers prefer to see a well-organized history of your business’s financial and operational activities. Well-maintained records facilitate their decision-making process regarding the purchase of your franchise.

Find potential buyers

Advisors/business brokers have a wide network of potential buyers/investors to market to. From an initial, non-binding Indication of Interest, your business broker will shortlist the most qualified buyers. More information is shared and will be trimmed down to the most capable buyer.

Sharing of business information via online data room

Maintain clear and organized records so that buyers can trust the value presented. This trust facilitates a smoother and quicker sale.

More data is shared between buyers and advisors for about 2-3 months for a more thorough examination of the company before closing.

Closing and Transition

The negotiations will be in their final phase and after the deal is done, there will be a transition phase to assist the buyer for an agreed period.

Ways to Sell Your Franchise Business

There are several options available when it comes to selling your franchise, each with its own steps that may suit different sellers.

Consult the franchisor for guidance

Reaching out to the franchisor is a wise decision if you’re looking to sell your franchise. They are familiar with the regulations and can assist you in navigating them.

The franchisor can provide the necessary documentation and support throughout the selling process. Since they need to approve any new buyers, their input is crucial. Additionally, they often have connections that could help you find a potential buyer.

Before you begin the selling process, it’s essential to understand your franchise agreement. Your franchisor can clarify the details, ensuring you don’t inadvertently violate any terms of your contract. Following the franchisor’s guidelines can also help streamline the process.

Next, consider enlisting the help of a franchise broker for additional support.

Work with a franchise broker

Partnering with a franchise broker can simplify the process of selling your business. These brokers have a deep understanding of the market and can help you identify buyers quickly.

A skilled broker will guide you through each stage of the sale, handling paperwork and communicating with potential buyers on your behalf.

Next, let’s explore the option of selling the franchise independently.

Sell the franchise independently

Selling your franchise on your own is certainly an option. However, it’s crucial to have a solid grasp of the franchise agreement, including all the rules and limitations. While selling independently can be challenging due to the various regulations surrounding franchises, it does allow you to have control over who purchases your business.

To attract buyers, make sure your business is well-prepared for sale. Ensure that all financial records and documentation are organized, as potential buyers will want to assess the business’s performance before making a purchase.

Taking these steps can make the selling process smoother, even if it feels daunting at first.

Key Considerations When Selling a Franchise

Before selling your franchise, consider the franchisor’s right to approve or deny the sale. It’s essential to adhere to all regulations regarding franchise sales and maintain good communication with potential buyers.

Understanding the franchisor’s right of first refusal

The franchisor’s right of first refusal allows them to purchase your franchise before anyone else can. This clause is typically included in the franchise agreement and gives them control over franchise ownership. 

If you decide to sell, you must inform the franchisor and provide them with details about the sale. They will then determine whether to buy it themselves or allow you to sell it to another party. 

This process can influence how quickly and to whom you can sell your franchise. Sellers should be well-acquainted with this rule, as it affects their selling strategy and can impact pricing and buyer selection.

Complying with franchise sales regulations

When selling a franchise, you must adhere to specific regulations designed to ensure a fair and transparent sale. It’s important to understand what your franchisor requires from you, which may include obtaining their approval for the buyer. 

Additionally, various laws may influence how you conduct the sale. You will also need to provide potential buyers with information about the business, including its financial performance and any significant challenges it has faced. 

Being transparent helps maintain trust and prevents issues down the line.

Next up, let’s talk about negotiating terms with potential buyers…

Negotiating terms with potential buyers

Once you’ve ensured compliance with all franchise sales regulations, it’s time to negotiate with potential buyers. This stage focuses on clear communication and finding a mutually beneficial agreement. 

You should outline your expectations for the sale, such as the price and timeline. Buyers may have their own preferences as well. Negotiations can proceed more smoothly if you know your minimum acceptable offer. 

Additionally, consider offering training or support for the new owner, as this can make your proposal more attractive. Maintaining honesty and openness throughout the process will help avoid complications later on.

Types of Franchise Sales

When it comes to selling your franchise, you have a few options: you can sell it back to the franchisor, find an independent buyer, or transfer it to another franchisee. Here’s a closer look at each option to help you make the best decision for your situation.

Selling back to the franchisor

One option for a franchise owner looking to exit the business is selling back to the franchisor. This means negotiating with the company that established the franchise, which often has the first right of refusal to buy it back before anyone else.

The franchise agreement outlines the rules for selling, detailing how you can proceed and the steps you need to take. The franchisor will assess the value of your business, and there may be costs or fees associated with this type of sale. Understanding these details upfront is crucial. Selling back can often be more straightforward than searching for a new buyer.

Next, let’s explore selling to an independent buyer.

Selling to an independent buyer

Selling your franchise to someone outside the franchise system can be a beneficial option. This route may open up a larger pool of potential buyers. The process typically involves notifying your franchisor, addressing any outstanding issues, and obtaining their approval.

Once you have the green light, you’ll need to provide potential buyers with information about the business operations and financials. Setting a fair price is essential, so consider what makes your franchise unique, such as its location or profitability, to help determine the right figure. 

Now, let’s discuss selling to another franchisee, which comes with its own unique challenges and advantages.

Selling to another franchisee

If you’ve considered independent buyers, you might also think about selling to someone who is already part of the franchise network. This can be a smart choice, as another franchisee will already be familiar with the brand’s operations.

They understand the business model and what it takes to thrive within it. Additionally, they may see an opportunity to expand their business by acquiring your location. Selling to another franchisee can be more efficient since they typically require less training or support from the franchisor, making the process easier for you and potentially quicker.

You’ll still need to get approval from the franchisor, but this path often leads to an easier transition for everyone involved.

Tips for a Successful Franchise Sale

Selling your franchise effectively requires openness with potential buyers. It’s important to showcase what makes your franchise unique and address their concerns right from the start. 

Be transparent with potential buyers

Being upfront with prospective buyers is essential. You need to inform them about the initial investment required, potential earnings, and the number of jobs the franchise could create. Provide them with accurate figures regarding the business’s performance and its position in the market. 

Additionally, disclose ongoing costs, such as franchise fees, and inform buyers about the support and training they will receive. It’s also crucial to be honest about the challenges and risks associated with running the franchise. This level of transparency fosters trust with buyers before they make a decision.

Highlight the franchise’s value proposition

When promoting a franchise, it’s vital to emphasize its unique features. For instance, McDonald’s leads global sales with an impressive $118 billion in 2023, serving as a prime example. Being part of such a well-established brand means contributing to its success story. 

Moreover, the quick-service restaurant market is vast, projected to be worth $382 billion by 2023, indicating significant profitability in this sector. Sharing your connection to these remarkable figures and markets can greatly enhance your franchise’s appeal.

The growth of Subway, despite closing some locations since 2015, signals to potential buyers that they are investing in a resilient and expanding business. 

This type of information makes your franchise more attractive to those looking for a wise investment.

Address buyer concerns early

It’s crucial to address buyer concerns promptly. Buyers typically have numerous questions and apprehensions. Discussing these issues as they arise helps build trust and streamlines the selling process. 

Be clear about any challenges your franchise has faced in the past and how you resolved them. Additionally, share your plans for future growth, demonstrating to buyers that you have a vision for the business. 

This increases the buyer’s confidence as it shows buyers a clear direction for their success too.

Doing this early on can make them more likely to buy your franchise.

Common Mistakes to Avoid During the Sale

Selling your franchise at an inflated price can deter buyers, just as neglecting necessary paperwork can lead to complications. Avoiding these common pitfalls is crucial for a successful sale.

Overpricing the franchise

Setting an excessively high price for your franchise can scare off potential buyers and prolong the selling process. It’s essential to determine the fair market value of your franchise to attract interest. 

This involves assessing its profitability and market position. 

If your asking price is too steep, prospective buyers may hesitate to engage in discussions. A reasonable price fosters trust with interested parties. 

Additionally, enlisting a broker can simplify the selling process, as they are experienced in navigating the complexities of a sale.

Next, let’s ensure we have all the necessary documentation ready before we proceed with the sale.

Not preparing proper documentation

Failing to have the appropriate paperwork can complicate the sale of a franchise. It’s vital to present clear and comprehensive records to facilitate a smooth transaction. This includes having your business’s financial and legal documents organized. 

Without them, you risk delays or even losing the sale altogether. 

Ensuring everything is in order not only helps avoid these issues but also provides buyers with the information they need, expediting the sale process.

Next, we’ll discuss the importance of adhering to the franchisor’s requirements and the potential consequences of neglecting them.

Ignoring the franchisor’s requirements

Having the right paperwork is essential, and so is complying with the franchisor’s guidelines. 

Overlooking their requirements can lead to significant issues. Franchisors have specific rules regarding who can purchase and how the sale should be conducted. 

Ignoring these can hinder or even halt your sale. 

If you fail to consult the franchisor beforehand, they may reject your buyer, forcing you to restart the search for a new one. Always ensure you meet their criteria to facilitate a smooth selling process.

Exit Advisory and Sell-Side Assistance for a Successful Sale

Selling your franchise can be smoother with exit advisory and sell-side help. Experts can assist you throughout the selling process. They understand the laws and can accurately assess the value of your business, which is essential for achieving a successful sale. 

These advisors evaluate various factors, including your franchise’s earnings and its market position. They also leverage their expertise to identify buyers who are willing to pay a fair price. 

With their guidance, you can steer clear of common pitfalls associated with selling. 

The Bottom Line

Selling a franchise business is possible. The process involves specific steps and regulations that must be adhered to, ensuring the sale is equitable and complies with the franchisor’s requirements. This includes determining the right price, locating potential buyers, and managing the necessary paperwork.  

With the lengthy, time-consuming process you would not want unnecessary delays or worse, failed negotiations because of lapses in the details of the sell-side process.  

This is why expert business brokers are integral to selling a franchise. They are experts in business valuation to sell at maximum value, see all the sell-side processes, and the legal aspects of the negotiation. They also have exposure to and a network of potential buyers. 

With experienced brokers guiding you through the entire process, there will be no unnecessary delays, no unpleasant surprises, and you get the best possible valuation when selling your franchise.

ValleyBiggs is a team of expert, award-winning business advisors with more than 20 years of experience. Being 100% success-based ensures that your business interests are best protected. 

FAQs

1. Can you sell a franchise business?

Yes, selling a franchise business is possible. However, it’s important to familiarize yourself with your franchise agreement and the legal obligations before initiating the sale.

2. What factors should I consider when planning to sell my franchise?

When preparing to sell your franchise, take into account its financial performance and the current market landscape. Have a clear exit strategy and obtain a precise business valuation.

3. How do I find potential buyers for my franchise?

To find potential buyers, you might consider advertising within relevant networks or engaging business brokers who have a network of buyers and investors and specialize in connecting sellers with interested buyers.

4. Are there any special legal requirements when selling a franchise?

Yes, each sale comes with specific legal requirements that must be fulfilled according to the original terms outlined in the franchising agreement.