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On the am rket
An alternative option is for the franchisor
to request its franchisee to notify them of
their intention to sell the business. If the
franchisor is not interested in buying, the
franchisee is free to sell to a third party,
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Manzoor Ishani on the legalities of
subject of course to certain conditions. If
the franchisor wants to buy, the franchisor
selling up and moving on, otherwise known
and the franchisee get together to agree a
price, which is acceptable to both parties.
as franchise resales
If agreement is reached (and it is in most
cases) the deal is done and the business
is sold. If they can’t agree on a price, the
parties arrange for the business to be valued
“Without question, ethical franchising requires franchisors to by an independent valuer. Once the value
permit their franchisees to sell their businesses.”
is determined the franchisor must either
exercise their option to buy or decline in
which case the franchisee is free to sell
to a third party, with the added advantage
providing the terms are fair. Experience has of having an independent valuation
shown that most franchisors rely on one of enabling them to market the business more
two mechanisms for valuing a franchisee’s effectively.
business if they want to exercise their From the franchisee’s point of view the
option to buy. In both cases the franchisee is disadvantage with this mechanism is that the
‘B
E YOUR own boss – own your required to offer his or her business to the independent valuation may be less than a
own business!’ scream various franchisor first, before going on to sell to a figure the franchisee might have been able
advertisements for the sale of third party. to obtain on the open market. The main
franchises. It is true that one of the principal Franchisees have no difficulty in selling advantage however, is that the franchisee can
reasons why people buy franchises is that their businesses to their franchisor or indeed effectively sell their business by making one
they get to own their business and, after giving the franchisor a right of first refusal, so phone call without the hassle of having to
years of hard work when the time comes to long as the terms are fair. After all, all they deal with numerous prospective buyers.
retire or to move on, they are able to sell are concerned about is the colour of the
their business as a going concern and buyer’s money, not the identity of the buyer.
realise again. Franchise agreements provide that if a
Franchisors emphasise this aspect franchisee wishes to sell, they must notify
of franchising and it plays a major part the franchisor of any offers they have
in motivating franchisees to grow their received for their business. The franchisor
business. However, those franchisees who then has the option of either buying the
have taken the trouble to seek expert legal business by matching the terms of the offer
advice will have learned the importance of received by the franchisee from a third
the fine print in most franchise contracts, party or declining to exercise its option.
namely, the conditions which franchisors From the franchisor’s point of view, this is an
impose and which franchisees need to satisfy, ethical approach because for the franchisee
before they can sell their businesses. it secures the true market value (a willing
Without question, ethical franchising buyer and a willing seller) of
requires franchisors to permit their their business.
franchisees to sell their businesses, subject
to certain conditions. These conditions are
designed to protect the trade secrets of the
franchisor, the integrity of the franchised
network and maintain the standard of
its franchisees.
However, what is not often clearly
understood is that in many cases franchisors
reserve the rights of first refusal. There
is nothing wrong with this in principle,
April 2010 www.businessfranchise.com
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