Bill Kobayashi CBI, CBC, CMEA of
KMK Business Brokers in Los Angeles County relates a story about a potential business owner of a franchise looking to sell his franchise after "he had sold his book of business".
From Bill at KMK Business Brokers:
"Last week, I received a call from a business owner requesting assistance in selling his franchise business. He described the franchise (established 5 years) as a home based B to B premium products business, which had many long time clients and annual company revenues in the mid six digit range.
In addition to having low product pricing as one of the early franchisees, his franchise rights contained a sub market royalty and advertising agreement with a company web site in place. However, as the story unfolded, it seems that he had already sold the “book of clients”, the entire Rolodex and the incoming phone line to a competitor. With a small down payment, he had agreed to a two year earn-out on the balance based on client retention and performance. Now, he wanted to sell the franchise “shell”.
At this point, the franchise itself is worth very little in the open market; after paying the franchise transfer fee, the buyer would have little advantage over going directly to the franchisor for a new franchise and thus taking advantage of enticements for new franchisees.
The fact that this Seller did not seek consultation from a qualified Broker specialist to conduct a prior evaluation of the business to determine its range of value probably cost this Seller a six figure loss!"
As you can see if this owner had consulted Bill before he unwisely sold his "clients" he would have gotten a lot more on the sale of his franchise on the back-end if he had not sold his most important asset in the deal - his clients and the ongoing stream of cash flow!
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