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Steps To Selling Your Franchise Resale

Once you decide that you would like to sell your franchise business the first step is to inform your franchisor of your decision. They may be able to source a purchaser for you, though most will charge a commission fee for this.

Any potential purchaser will require a whole range of information about the business before they are in a position to discuss a price with you. This information should be provided in a Prospectus of Sale and should include:

  • A description of the franchise, what it does and how it works
  • Potted history of your business
  • The sales history and adjusted profit history
  • Details of any property
  • Details of any staff
  • Details of any equipment
  • Copies of 3 years of accounts and up to date management accounts
  • A realistic asking price

The Prospectus is your sales document. Whilst it is designed to sell the business, it must represent an accurate view of what is being offered and must not contain any misleading or false information.

Once a potential purchaser has been found, before providing any confidential information, you should arrange for them to sign a non-disclosure/confidentiality agreement. Once signed, you can provide your Prospectus of Sale and other supporting documents and commence negotiations. At some stage in this process the prospective purchaser must meet the franchisor to be approved as a prospective franchisee. You should agree with your franchisor when they wish to do this.

Once agreement in principle on the purchase of your business has been reached between you and your purchaser you should exchange emails confirming the offer for the business and your acceptance of this offer.

Attorneys will usually be needed to complete the legal transfer of the business in question and, though this is not always necessary for small value resales, it is good practice to always speak to an attorney before deciding. It is important however to only use an attorney who has experience in the resale of franchises.

Exchange of contracts usually takes place prior to the franchisor’s training course for the new franchisee and will usually occur the week prior to the course. This however is not set in stone and will vary from franchisor to franchisor. You should confirm this with your franchisor.

The purchaser must usually attend, and pass, the franchisor’s initial training course. If for some reason they are unable to attend training or fail to pass the assessment then the sale may not complete as it is likely your franchisor will not allow them to take on the franchise without training.

Prior to completion of the sale you may be required to instruct your attorney to give an undertaking for the payment of any outstanding fees, commission charges etc for which undertakings have not previously been given.

All suppliers or providers of leased equipment will need to be notified of the impending transfer in time for the new franchisee to be able to set up credit accounts with them so the business can proceed without pause once completion takes place. Discuss this aspect with your franchisor.

Without the relevant legal undertakings throughout the business transfer process, transfer of ownership may not be authorised by your franchisor.

Completion is the day that all relevant funds are transferred and the new franchisee takes over your business. This usually is straight after the training franchisor’s course.

You may well be required to attend the business during the first week or so to introduce the purchaser to your customers and possibly be on call for a few weeks thereafter.

The entire process can be stressful as most people only buy and sell a franchise once. You may consider using a franchise broker to manage the process with you and to take some of the day to day hassle away whilst you focus on the continued growth of your business during the resale process.

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