Twelve Tips on Selling Your Franchise
Jim Deitz, The Franchise Doctor


No matter how happy or successful a franchisee may be, sooner or later, a decision will be made to sell the unit. Whether the motivation is retirement, relocation, illness, divorce, or some other reason, some preplanning and research should make the process easier and more rewarding for the franchisee.

Here are a dozen tips that should be studied, even if you don't see a sale in your short term future.

1. Don't Hide Cash With today's onerous tax liability, many small business owners are tempted to pocket cash and take the risks. This is a dangerous policy because of the tax penalties that can be due if an IRS or state audit uncovers the problem. Equally important is the fact that the sales price is usually based on provable revenues and profits. Since there will be no record of your cash transactions, no buyer will be willing to believe your claims that these receipts exist.

2. Price Your Business Right When you have a firm understanding of how franchises in your system and your industry are priced, you'll have a better probability of making a sale. When profits are low, your price will be lower, if profits are significant, you should be rewarded. In the current marketplace, we find service businesses typically sell for two to three times annual "reconstructed cash flow." This is the amount that an owner had at their disposal in salary, profits, perks, and non-cash items, such as depreciation and amortization.

3. Know Where You're Going Sometimes business owners think of selling their company after a bad week (or month). If luck is against them, they may quickly arrange a sale and only then realize that they don't have a plan for the rest of their lives. Be sure, before you set out to sell your franchise, that you have a plan that you will find more rewarding than your current position.

4. Notify Your Franchisor Regardless of the amount of assistance your franchisor provides in helping franchisees resell their units, you should notify them of your intentions. Your buyer will need to meet certain standards in order to be accepted by the franchisor. Reviewing these with headquarters will keep you from spending time with buyers who can't pass the test.

5. Have Reasonable Expectations There are many factors that have an impact on how long it will take to sell your franchise. Primary among these are your advertising campaign; the size of your marketplace; the local and national economies; the reputation of your franchise system; how much your unit earns; how you have priced your unit and the amount of cash necessary to buy you out. By having control over the last two, you basically control when you will sell your franchise. Lowering the price and/or down payment in comparison to other offerings in your marketplace, will speed your sale: setting it high will require longer to find the perfect buyer to meet your terms.

6. Know Where & How to Advertise Finding the buyer can be a challenge. Knowing where to advertise and what to say, is critical to getting buyers interested in your offering. You should also consider local businessmen in positions of influence who may be able to guide prospective buyers to you. Bankers, accountants, attorneys, Chamber of Commerce executives, and Trade Association officers will often know people who are searching for a business similar to yours.

7. Demand Confidentiality In most business sales, it's important that employees, customers and vendors are not made aware of the owner's interest in selling until the transaction is imminent. Many people assume that wanting to sell means a business is on the brink of failure and employees will look for a job elsewhere, customers may change allegiance and vendors may tighten their credit standards. You must impress upon your buyer prospects the need to maintain as confidential, the information you provide to them.

8. Sell the "Tour" Learn how to qualify the callers and encourage them to visit your business to learn more about your offering. There have always been too many "armchair" buyers who review advertisements, make calls and read brochures without ever actually visiting a business. The internet seems to have made this condition worse. Until they visit your franchise and "kick the tires," you have little chance of selling your unit. Offering the right "carrots" to get them in, and then presenting the opportunity you're selling enthusiastically.

9. Prepare Your Presentation Buyers want more than a little conversation and some discussion of how you run your franchise. Today's buyers are sophisticated and demand to see financial records, tax returns, etc. Unfortunately, these are usually prepared to minimize taxes and can confuse buyers into believing that there are no profits in your business. You'll probably need an accountant or another advisor to help you determine what to present and how to explain your earnings to a buyer. A good presentation package will discuss your reasons for selling, explain the demographics of your market, profile the franchise system, disclose your annual profit and loss statements, and present any negatives in a positive light. Many business sales are never completed because the seller expected the buyer to look around their unit, recognize its great potential and offer to buy it. This seldom occurs when businesses are valued at more than $20,000.

10. Solicit an Offer Talk is fine, but to sell a business, you, and the buyer, need to structure a written offer to purchase your franchise detailing the points that are important to the parties, including the price and terms.

11. Negotiate to a Contract If the buyer has another opinion on the value of your business, you must negotiate to an agreement. This final contract will be used by the closing attorney to develop the final sales documents.

12. Assist in Franchisor Acceptance Let the franchisor know of your agreement and volunteer to help the franchisor and the prospect complete their application and review process. In most systems, you may not complete your sale without someone paying the franchisor's transfer fee and signing (usually) a new franchise license.

13. Assist in the Transition In most systems, only a headquarters trained individual can run a franchise. You should plan to run the business while the new owner attends the required headquarters training.

Using these guidelines, if you are reasonable in your expectations, you should be able to arrange a sale of your franchise that meets your needs. If you'd like to review how The Franchise Doctor can assist you in the process, please don't hesitate to call 800 220-8256. Our "Franchise Resale by Owner Program" teaches franchisees how to sell their own franchise at a fraction of the cost charged by brokers. Our latest book, "Insider's Secrets to Buying a Franchise" provides a step-by-step process to ensure that buyers make the right choices in searching for and investing in a franchise of their own. Further details may be found at www.FranchisesForSaleByOwner.com

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Last Revised: April 11, 2008
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