People like black and white answers to their questions. Unfortunately, the question as to what is involved in selling a franchised business is not one where a one-size-fits-all answer will suffice. It fully depends on what the franchise agreement and any amendments state with respect to the rights and obligations relative to a potential transfer of ownership.
Some of the things that you are likely to find are:
First Right of Refusal: In many cases the franchisor has a "first right of refusal" to buy your franchise upon whatever terms and conditions you have negotiated with an independent party. The existence of such a clause means that few buyers will be interested in pursuing your business, as they run the risk of doing all the investigation and review and then being left on out of the picture. Anyway, you need to know whether or not the franchisor has such a right and, if so, if the company intends to exercise it.
Right of Approval: Most franchisors have the right to approve a successor franchisee with respect to financial, business and other qualifications. These "rights to approve" typically have teeth in them to the extent that the agreements state that any unauthorized transfers of ownership terminate the franchise agreement. In many cases, the approval is also accompanied by additional conditions, such as obligation to enlarge, upgrade, open an additional location, etc.
Transfer Fee: Most franchise agreements require an 'approved successor owner' to pay a transfer fee to the franchisor. In most cases, it is not a large amount and is generally considerably less than the fee paid by the original franchisee.
Training or Other Requirements: The backbone of most franchises is 'standardized methods of operation', and therefore many franchisors require that new, inexperienced operators agree to attend and complete franchisor-sponsored training before they are permitted to assume ownership.
Term of the Franchise Agreement: Few franchise agreements are in place forever, with most having expiration dates, and some having options for renewal. Therefore it is very important to have either a relatively long term left on your franchise agreement when you go to sell, or to already have renewal options negotiated and in place, and transferable to a new owner.
These are some of the primary issues that you will have to understand and possibly deal with in the sale of your franchised business. You should also find out if your franchisor actively resells franchise locations and what the track record is in doing so. Some franchisors have good programs in that they are typically always advertising for brand new franchisees and thus have prospects for existing franchises. However, the reality is that most franchisors are far more interested in the sale of new locations (with large front end and real estate related fees and profit potentials) than they are in the resale of an existing location.
About The Author: Steve Fitzgerald is a business broker in the San Diego area assisting business buyers and sellers throughout Southern California. You can reach Steve by phone at 858-320-0474.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Diane Boudreau-Tschetter: Escrow & Bulk Sale Services - CA
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Helen Yoo, New Century Escrow - Escrow Services In Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Shalonda Chappel-Pilgram: Escrow & Bulk Sale Services - Southern California
Escrow services to brokers/agents, sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. 951-808-3972.
|Bob Hughes, Business Broker: Coachella Valley Area
Bob Hughes is a business broker & is President of Hughes Properties. Hughes has a wide variety of entrepreneurial experience with the personal ownership & sale of numerous businesses, and has sold over 200 small & mid-sized businesses in the Riverside County marketplace. Call Bob at 760-323-8311.
|Lee Petsas, Business Broker - Southern California Area
Lee Petsas has been selling businesses with UBI Business Brokers in Southern CA since 1981. In 1999 he became the Owner and Broker for UBI. He has been approved multiple times by Courts as an Expert Witness in the area of Business Valuations.
|Jack Oh, Business Broker: LA, Orange Counties
Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.
|Ryan Clark, Business Broker: Southern California
The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan, Business Broker at 310-652-8353.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Going Behind A Brokers Back: How Does A Broker Protect Themself?
What are some ways a broker can prevent a buyer and seller from doing a deal behind their back and what to do about it if it happens? Joe Ranieri (Orange County Business Broker) discusses ways a business broker or agent can protect themselves from buyers and sellers trying to circumvent them.
|Due Diligence Checklist: 10 Key Items To Investigate When Buying Businesses
Buying a California small business involves reviewing due diligence checklists so buyers can learn enough to determine whether to proceed with a deal. Here's a due diligence checklist. Peter Siegel, MBA (BizBen ProBuy Advisor & Business Purchase Financing Expert) at 925-785-3118 shares his views.
|What Are The Pros And Cons Of Selling A Business For Sale By Owner?
What are the Pros & Cons of selling a business yourself? Joe Ranieri (Orange County Business Broker at 714-292-5448) discusses all the angles of business owners taking the initiative and selling their own business. He covers: commissions, flexibility factors, control, exposure, and confidentiality.
|Getting An SBA Loan To Buy A Small Business: Dispelling Some Major Myths
When seeking SBA loan financing many potential business buyers have wrong information about the process of securing the best financing to buy a business. Peter Siegel, MBA (at 925-785-3118) a business purchase financing expert delves into the myths and facts regarding SBA loan financing.
|Buying A Business With Partners Or Family Members: Pros And Cons
Buying a business with a partner/partners, family members can make one think twice about ever doing it twice! However in this BizBen Discussion Post Joe Ranieri (Orange County Business Broker at 714-292-5448) chats about identifying roles, defining goals, attorney visits, and other relating issues.
|FREE Sat Seminars: Best Practices When Buying Or Selling A Small Businesses
This seminar focuses on the process of buying & selling a small business. Sat's - Monthly (refreshments will be served) in Southern California. Phone Willard Michlin (CPA, Certified Fraud Examiner, Due Diligence Expert, Business Broker). Phone 805-428-2063 to RSVP. Click On Link For Schedule.
|What Steps Do I Take When Closing A Business That Doesn't Sell And I Close?
Every business broker knows that a listing taken is not a listing sold, in fact the ratio of listed vs. sold could be discouraging if you really thought about it. Joe Ranieri (Orange County Business Broker) discusses what you should do if you finally have to close the doors and call it quits.
|November BizBen Index: 1,224 California Small Businesses Sold Last Month
Total sales of California small businesses sold were down 18.1% from last month and down 20% from the same time last year in California. Several factors contributed to these numbers including: owner/sellers waiting to list until 2020, more business brokers exiting industry, lower buyer demand.