What You Need to Know Before Re-Selling Your Franchise

September 13, 2016
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What to expect when re-selling your franchisere-selling your franchise

In a previous post, we discussed the process of selling your franchise. Now, however, we will walk you through the basics of re-selling your franchise – a totally different ball game.After you have notified the franchisor that you’re considering re-selling your franchise, there are several aspects you need to take into account.

Finding a prospective buyer

One of the often overlooked factors of the re-sale process for franchisees is that they do not realize that the franchisor will help them find the right buyer.

There are several considerations to make when re-selling your franchise.

Here are several ways in which the franchisor may assist in this process:

  • Find prospective buyers for a fee.
  • Use a third party sourcing firm to locate prospective buyers.
  • Direct you to franchise resale firms within the network to identify potential buyers.

The truth of the matter is that any franchisor will want a suitable buyer for its franchise network. Often, the franchisor will have a specific set of guidelines and procedures that outline the steps a franchisee needs to take prior to engaging in the re-sale process.

What you need to do before negotiations

There are two documents that a prospective buyer will need to review prior to any negotiations: the non-disclosure agreement and the prospectus of sale. 

The NDA protects the franchisee’s proprietary information, while the prospectus details all necessary financial information as well as the asking price for the buyer.

The prospectus information will provide an overview of the whole franchise as well as the franchisee’s business. It will also cover the financial and accounting history of the business to include sales, operating costs in addition to profit and loss. The franchisee will also need to describe the property, staff members and equipment used in the location.

What you need from the prospective buyer

In addition, the potential buyer will need to meet with representatives of the franchisor for approval of the sale. Not only will the purpose of this meeting be for approval, but typically, it will also be training for the buyer. This is especially important because if the prospective buyer does not meet qualifications through the training provided, the sale could potentially be rejected.

What you need to know during negotiations

As soon as a price has been agreed upon, the franchisee and the prospective buyer will need to confirm the sales offer.

Any legal transfer of the franchise ownership cannot be completed without proper documentation and approval from the franchisor.

At which point, a franchisee will need to work with their franchise attorney to navigate through the legal transfer of the business.

What you need to do before completion of the sale

This point in the sales process is where it is essential to work with an attorney who specializes in franchise re-sales. There will be fees, commissions and various other unforeseen expenses prior to the sale, so franchisees will need to settle these before completing the sale.

The franchisee is also required to notify all supplies and vendors in advance of the sale’s completion so that the prospective buyer can establish credit with the providers. This is vital to ensure there is no business interruption following the completion of the sale.

What you need to do following completion of the sale

When the funds are sent for the sales price, the franchisee effectively transfers ownership of the business to the buyer. Often, the franchisee will conduct onboarding to walk the buyer through the initial operations of the business.