Franchise Advice


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t is true that one of the principal reasons why people buy franchises is that they get to own their own business and, after years of hard work, when the time comes to retire or to move on, they are able to sell their business as a going concern at a profit. Franchisors also emphasise this aspect of franchising and it certainly plays a major part in motivating franchisees to grow their business. Without question, ethical franchising requires franchisors to permit its franchisees to sell their businesses, albeit subject to certain conditions. These conditions need not be unduly onerous and are designed to protect the


trade secrets of the franchisor and the integrity of the franchised network, and maintain the quality of its franchisees. In many cases, franchisors reserve for itself rights of first refusal. There is nothing wrong with this in principle and such a provision can work to the advantage of the franchisee.


Experience has shown that most franchisors rely on one of two mechanisms for valuing a franchisee’s business if it wants to exercise its option to buy. In both cases, the franchisee is required to offer their business to the franchisor first, before going on to sell to a third party. Franchisees have no difficulty in selling


their businesses to their franchisor, or, indeed, giving the franchisor a right of first refusal, so long as the terms are fair. Franchise agreements provide that if a franchisee wishes to sell, they have to notify the franchisor of any offer they have received for their business. The franchisor then has the option of either buying the business by matching the terms of the offer received by the franchisee from a third party or declining to exercise its option. From the franchisor’s point of view, this is an ethical approach because it secures for the franchisee the true market value (a willing buyer and a willing seller) of their business. →


July/August 2017 | BusinessFranchise.com | 19


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