Franchise Advice O
ne of the most important steps along the franchise journey will often be the fi nal one. This is the time a franchisee will look to realise
a return on their investment and think about selling their business. The franchise resales market in the UK is particularly buoyant at the moment, providing the ideal opportunity for a franchisee to reap the rewards for all their hard work in building up their franchise.
Plan ahead Preparing your business for sale is fundamental – it takes time to sell a business. Rarely does someone wake up one morning, think ‘it’s time to sell my franchise’, and successfully sell it within a week or two. This process takes time – usually months, but sometimes years. Timings will depend on a number of factors but planning your exit strategy well before you wish to sell is sensible. Many franchisors work with their franchisees to consider the franchisee’s end goal during annual reviews.
Much like selling a house, the business needs to look attractive to a buyer. Consider what a buyer will want to know and ensure you begin compiling the relevant information early on and in an organised manner. Beyond key fi nancial information, profi t margins and the time it will take to recoup their initial investment, a buyer may also want information like details of premises and lease arrangements, long- term or material contracts, employees of the business, and assets.
Understand the process
Many franchisors have a clear plan and procedure for franchisees to follow when selling their franchised businesses. Even those that do not are often still heavily involved in franchise resales. The process and level of involvement varies from franchise to franchise, so it is important to understand what will be required by the franchisor and to get the franchisor on side at an early stage. It is also important to check your franchise agreement, and any relevant section of the franchise manual, to see what they say about selling your business and the steps to be taken. Consider whether the franchisor has a right of fi rst refusal over the sale of your business; does it have the right to purchase the business on the same terms as any prospective buyer? Check whether it is planning or is likely to exercise such right. Any such right of fi rst refusal may be linked to a timeframe, so be aware that this could delay the sale.
Franchisors may off er assistance in locating a buyer, and even if a franchisee fi nds a buyer directly, the franchisor will want to approve them. As with taking on any new franchisee, the franchisor will need to ensure the buyer has relevant experience, perhaps training and qualifi cations, and generally fulfi ls the franchisor’s criteria for franchisees. The franchisor and the buyer will also want to develop a relationship and it is important for that process to be initiated as early as possible.
Take advice
Consider the advice you will require in selling your business. It can be helpful to work with a franchise resales broker, who will help to prepare your business for sale and assist with valuation and marketing. Legal and accountancy advice will also be necessary to ensure everything is in order and properly documented. Preparing, negotiating and fi nalising the sale agreement and relevant documentation will require legal input. It is highly recommended that a franchisee wishing to sell their business uses a specialist franchise lawyer who is experienced in franchise resales; as a specialist lawyer understands the process involved, it can save time and money, as well as stress and frustration. From experience, having a non- franchise lawyer on the other side can be painful, so it is a good idea to insist that the buyer also uses a franchise specialist.
Consider costs There will undoubtedly be costs involved in selling your franchise. First, the franchisor may charge a fee for checking the buyer or, in some cases, helping to locate a buyer. There may also be training fees (either paid by you or by the buyer) and legal fees, which the franchisor incurs in permitting the sale and sometimes providing a sale agreement for you to use. Such legal fees are typically split 50/50 between the buyer and seller, and both parties need to be clear on what fees they will be required to pay. Understanding the fees that may be charged at the outset is important to avoid any surprises. Further, you will need to consider any resales broker’s fees and your own legal and accountancy fees.
Bringing it all together
Selling a business, and getting the right price for it, is not always straightforward. The reason a buyer may buy a business is likely to be very diff erent to the reason a seller is looking to sell a business. Planning ahead and taking time to make the business attractive will be valuable. A good starting point is to work with the franchisor to benefi t from its experience and to ensure a clean handover.
About the author
Vicki Mitman is an associate at Birketts LLP Solicitors.
June 2017 |
BusinessFranchise.com | 63
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