Creating a successful franchise operation is not an easy task. You spend years as a franchisee building up your operation to the point that it has become a profitable venture. Now you are ready to step back from your franchise and move on to other things. However, you don’t want to leave your franchise without selling it for the best price. Selling your franchise can be a complex process and things can go wrong if you are not prepared. There are steps you can take to make the process easier and ensure that potential buyers are valuing your business properly. Here are a few tips to perfectly position your franchise for sale.
Let your Franchisor Know and Understand your Franchise Agreement
Before you try to sell your franchise it is important to reach out to your franchisor and let them know you are interested in selling. Your franchisor has a vested interest in who you sell your business to and they will have basic requirements for who you can sell the franchise to. It is vitally important that you understand your franchise agreement front to back. This agreement will lay out any types of transfer fees you owe, what type of buyer is eligible to purchase your business and can even outline remodels you may need to make before you sell your business.
More importantly, your franchise agreement might give your franchisor the right of first refusal, meaning they have the right to buy the franchise back from you first before you can put it on the market for outside buyers.
Overlooking the franchise agreement is a common mistake we see many franchisees make. Understand every inch of your franchise agreement before you sell because the finer details of that agreement could dictate if you want to sell or not.
Financials in Order
A franchise owner serious about selling should make every effort to keep their books in order. Your records should contain accurate profit and loss statements, balance sheets and corresponding tax returns. Being up to date on basic financials is essential and will make things easier for you, the buyer and the franchisor.
Additionally, a franchise owner whose books are in order will receive an accurate valuation of the operations value and ultimately lead to a more accurate valuation of your franchise.
Maintain your Equipment
Maintaining a high-quality franchise while you position a sale is key to getting the most for your franchise.
Make sure the the equipment required to operate the business are well maintained and in good working condition. Similar to books and records, keep your service receipts to show your assets have been maintained to increase your chances with potential buyers.
If something is broken, then make sure it is fixed before you show your franchise. A buyer is not going to purchase a business that requires thousands of dollars in repairs. Remember to check your franchise agreement to see what types of repairs, maintenance or remodels are required by your franchisor.
Keep Your Customers Happy
A franchise with happy customers will be sold more quickly than a franchise with unhappy customers. While you are positioning your franchise for a sale, make sure sales continue to trend positively and your customers still enjoy being a customer. Managing reviews on online platforms, Google and Yelp; while also procuring new, 5-star reviews, is important and goes a long way in solidifying the goodwill associated with your franchise.
A potential buyer can easily gauge the perception of your franchise and negative reviews are not going to be appealing.
If your franchise has negative online reviews, respond to those customers and try and remedy their concerns. This shows you take an interest in the customer experience. Improve on your customer service and encourage happy customers to leave a review online.
Find a Broker with Franchise Experience
Selling a franchise is a unique experience from selling an independent business and you should keep that in mind when looking for a business broker to help you sell your franchise. Hire a business broker that specifically has experience working with franchises. A business broker with franchise experience knows the process and regulations involved in selling a franchise. They also better understand the franchisor and franchisee relationship and are better equipped to navigate that relationship in a way that keeps both parties happy.
Many brokerages will have a designated franchise division showing that helping people buy and sell franchises are a big part of their business.
Hire a business broker with franchise experience and don’t be afraid to ask for records of their sales so you can see how many deals they have successfully navigated.
In my experience, many franchise owners overvalue their business which leads to some pretty hard lessons about the realities of selling. Manage your expectations during the selling process by understanding that no valuation is the same. If you know another franchisee who sold their franchise for a certain amount, it does not automatically mean you will get the same value.
A great way to manage expectations is to speak with your business broker and review your business in detail, look at market comparisons, trends and overall profits of the business to determine an honest valuation of your business.
Working with your broker and understanding what the market is truly bearing will make it easier for you to navigate through the difficult process of selling your franchise.
Know the Next Step
What is the plan after you sell? Do you need another source of income or are you planning on retiring from the proceeds? What is the future value of the money from the sale and is that enough to get you to where you want to be? These questions are something you should know before you sell a piece of your livelihood, especially if this is your source of income.
What is your exit strategy? Are you going to take the money and start a new venture or set off into the sunset and retire?
I would recommend speaking with your financial advisor and creating a plan that maps out what you plan to do after you sell your franchise.
Selling your franchise can be a difficult process but following these steps will allow you to move forward with a better understanding of what to expect.
Brian Bond is the Principal of Strategic Business Brokers Group a brokerage firm in Scottsdale Arizona. They are experts in all franchise-related transactions. Collectively, they have helped franchisees sell their franchises across Arizona.