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What Is Involved In Selling A Franchised Business?


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.


Categories: BizBen Blog Contributor, Franchises For Sale, How To Sell A Business, Selling A Business



  Helpful Resources To Assist In Selling And Buying California Businesses
Diane Boudreau-Tschetter: Escrow And Bulk Sale Services - California

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.

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.

Joe Sandbank, Esq: Legal Services For Buyers, Sellers, Brokers - Throughout California

I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process. Please phone 916-672-8018 for more info.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services - California

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.

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 at 310-652-8353.

Bob Baumgarten, Business Broker: Orange, LA Counties

National Business Brokerage is a full service brokerage company that has been serving buyers and sellers of Southern California businesses since 1994. We are dedicated to providing the highest standards of professional service for our clients. Phone Bob direct at 949-588-8727.

Elizabeth McGovern: Escrow Services - San Francisco Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.


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