Are you a franchisee who’s ready to sell your business? Maybe you’re ready to retire or eager to finally travel the world with some of your hard-earned profits. Or maybe you’re tired of the partnership with the franchisor or with managing members. Are you burned out? After operating the franchise for years, maybe it’s just time for a change to fire up your interest in some other areas of business.
Nonetheless, the first tip for selling, whether for retirement or simply a loss of adequate cash flow, is to leave emotions out of the equation. Selling is sometimes unavoidable, such as for illness or family emergencies. But in most cases, a re-sale can be and should be based on an economic advantage to the seller. This means planning ahead of time to sell when the economy promises an adequate return on your investment largely based on market demand rather than personal impulse or emotion.
This does not mean, however, that personal factors won’t weigh upon the decision to sell. Of course they will. But the second tip found in the fortune cookie of re-sales can be summed up in one word: Preparation.
If you take a deep breath, slow down, and pace yourself, you’ll have the time to prepare adequately. During preparation you need to reach out for help. Start with a professional real estate broker, your lawyer, an accountant, or a professional re-sales company that can help set you up with a buyer who has been screened to meet your specific qualifying criteria. A company like Franchise Re-Sales, LLC or other transfer-assisting companies can take much of the stress out of the sale by personally walking with you through the preparation steps. These steps aren’t nearly as daunting when a friendly pro is just an e-mail or phone call away, and there are many steps to consider.
The first step is to feel the pulse of your business in relation to the market. What is your business worth? To figure an accurate valuation, you’ll need to enlist your accountant. To provide your accountant the data for an accurate valuation, you’ll need properly managed books. In preparing for a re-sale, particular care should be taken on ensuring that the year immediately prior to the sale is up to industry standards. This means the franchise bank accounts are properly reconciled with bank statements, tax reports, and the company’s yearly or quarterly financial statements. When all of these variables match, this reinforces the financial certainty of the buyer that the valuation is based on solid figures. Proper books also include access to original invoices, receipts, and other tangible records.
Another step of preparation includes an answer about seller financing. Will you provide it? On what terms? Maybe your franchisor or a broker could assist you on developing a plan upon which everybody can agree. Your banker might offer some tips, also.
Of course, there is probably a transfer fee that you’ll be required to obtain for the franchisor in covering administrative costs, as well. How much is that? Can you include it subtly in the selling price or do you wish to ask for it separately? Are you going to pay it with your own funds? These are points of preparation, because without this information you can’t possibly set an accurate price on your business. For example, the buyer will need to know if you’ve skipped on necessary upgrades or if you already invested them in the business prior to listing.
Preparation also involves setting your own standards of conducting business, so that everyone understands the expectations, especially for buyers needing seller financing. You don’t want a buyer to be so loose on managing principals that the franchise flops, causing a default on your lending of the loan. This means you should also review what standards the franchisor has already set, to avoid wasted time through redundancy.
You also want to avoid the appearance of hypocrisy. Live up to the same standards you demand from a successor. Clean up the place, tidy the parking lot, and make sure your employees are neat, groomed, and dressed appropriately. Your face is on your business, so give a good presentation.
Finally, in between all of your preparation, as you get closer to “seller ready” time, research and learn about aspects of a re-sale in general. Study what franchisor “First Right of Refusal” means, because it serves no purpose to do all of this preparation just to have your franchisor use this clause to scoop up your business. The same attention should be paid to the clause that allows franchisors to exercise the “Right of Approval,” by denying rather than approving your buyer. Training or other requirements might also be costly to your buyer and might make your price unreasonable. If you prepare and learn about these things ahead of time, without emotional pressures influencing your choice to sell, the decision will be more advantageous in the long run. You can do this by asking the pros to help long before you’re ready to re-sell and by performing the due diligence necessary to any business agreement. The more time you spend preparing, the less you will wait for action upon the new goals or adventures which now capture your interest.