As your business grows and changes, you may reach a point where you want to sell all or part of your franchise locations. This could be due to retirement, health, family changes, or simply because you want to do something different. That’s when you’ll find that selling a business requires just as much planning and strategy as growing one, at least if you want to maximize the value.
Buyers often make a purchasing decision based on how quickly a business will provide a return on investment, so it’s important to take the time to set your business up in a way that’s attractive. Similarly, you will want to structure the sale to maximize your profits and minimize your tax burden. Finally, you should also take the time to make a plan that ensures the smooth transition and ongoing operation of the business over the course of the sales process. This will both help to ensure an easy sales process and reassure your franchise’s customers, suppliers, and employees.
Selling Your Franchise
The first step in selling a franchise location is to sit down and talk with both your business attorney and your financial advisor. You want to make sure you’re covered both legally and financially, beyond taking care of practical matters like gathering the various documents you’ll need to showcase the business to potential buyers. This preparation process will also help you form a reasonable expectation of the value of your company.
Luckily for you, franchise sales tend to be more straightforward than sales of an entire corporation, in that it’s usually easier to find comparable businesses to base your valuation on. In addition, since there is a franchisor monitoring the business, there’s generally less uncertainty on what’s being sold.
Once you’ve done the prep work, you’ll want to advertise the sale and, eventually, get in touch with a potential buyer. The process of selling a business, just like selling a piece of real estate, takes some time and requires a veritable torrent of documentation. Having legal counsel that is familiar with franchise law advise you through your sale will help you significantly streamline the process and reduce the time you’ll have to spend on closing the sale.
Doing Your Due Diligence
Once you and the buyer have an idea about the terms of the sale, the buyer will deliver a letter of intent to you that states the details of the transaction as you’ve discussed. At that time, you’ll also sign a purchase agreement. These steps begin the “due diligence period,” where the buyer will check your books, the property, and more to confirm that everything is in the condition advertised. This process can take a while, depending on the size and complexity of the business.
During this due diligence period, the franchisor will also be notified, introduced to the buyer, and will have an opportunity to assess the buyer to confirm they meet the requirements of being a franchisee. Much as when buying a new franchise, the buyer will review the franchise disclosure documents and sign a franchise agreement with the franchisor. In addition to the cost to purchase the business, either you or the buyer will also be responsible for paying a franchise transfer fee to the franchisor.
This period is also the time to work through what it will take to transfer any real estate leases held by the business. Generally, those leases contemplate the situation where the business is being sold, and they lay out the approvals necessary to transfer to lease to the new owner.
Now You’re (Almost) Done!
Once due diligence is complete and the franchisor confirms the paperwork is in place, the sale of the business can close, and the buyer officially becomes the new owner of the franchise. Often, after this has occurred, there is a transition period where the old owner trains the new owner, and the business is fully transitioned from one management to another.
The team of experienced business attorneys at Chase Law Group, P.C. can help walk through the process of buying a new franchise, buying or selling an existing business, or selling your franchise locations. Give us a call at (310) 545-7700 to schedule a consultation today.