When it comes to making the difficult decision to put your business up for sale, it is often beneficial to get some outside experience to help guide the process. As an international franchise consulting network, the IFPG has a wealth of knowledge and experience to provide clarity and guidance when considering the sale of a franchise business. With this article, we will provide answers to several of the most commonly-asked questions that business owners have when preparing to exit from their franchise business.
No matter the size or age of a franchise business, the decision to pursue a sale involves some crucial considerations. Some common concerns of business owners while considering the sale of their franchise business can be divided into two categories: financial questions and the interests of the franchisor.
The most significant financial considerations that come to mind when deciding to sell a franchise business are:
- How much money should I expect to get out of the sale?
- Should I look for a buyer who is interested in continuing my franchise or someone who wishes to start their own franchise business?
- What are the long-term implications of selling my franchise business?
- What are the tax implications of selling a franchise business?
The first question is perhaps the most important and the answer largely depends on the value of your franchise, the value of similar franchises, as well as the current market conditions. When looking for a buyer, it may make more sense to locate one who is interested in continuing your franchise, as the potential buyer can leverage the existing brand and customer base. As for the long-term implications of selling your franchise, it is important to ensure that you set aside funds to engage in future investments and to protect against potential lawsuits. Finally, you must be aware of the tax implications of selling a business and must consult a qualified accountant to determine the tax burden associated with the sale.
The Interests of the Franchisor
Another important set of considerations to be taken into account when contemplating the sale of a franchise business are the interest of the franchisor. Lingering questions may include:
- Will the franchisor’s pre-existing agreement with the franchisee affect the sale of the business?
- Will the franchisor expect compensation in the event of a sale?
- Can the franchisor influence the terms and prices of a sale?
- Can the franchisor restrict the sale of the franchise to certain buyers?
- Can the franchisor prevent a business from being sold?
It is important to note that the franchise agreement between you and the franchisor should govern any sale of the franchise and thus, the franchisor can usually approve or restrict the sale of a franchisee’s business. Furthermore, the franchisor may expect compensation from you for the price of an established customer base and brand recognition. Finally, they can influence the terms and price of the sale but cannot prevent trading or prevent you from selling your franchise business.
In the end, the decision to pursue a sale can be complex and may require multiple factors to be taken into account. That is why the IFPG can provide its experienced and knowledgeable franchise brokers who can help to identify and guide investors as well as small business owners through this sometimes daunting but very important process.