Consider selling your franchise

While some franchisees are eager to transfer their businesses to their children, the majority are focused on selling them and maximizing their profit in the process.

Unfortunately, the decision to sell is often made without proper planning. Many franchisees lack an understanding of what's required when selling their business, either on the open market or to the highest bidder.

Throughout the life of a franchised company, business owners should concentrate on building a capital asset that can be sold for a substantial sum in the future. So, how can a business owner go about selling their franchise with as little friction as possible?

The Process: Selling even a small business is a complex endeavor. It's not as simple as putting a few basic details on a "for sale" sign in a local newsagent's window. This isn't a garage sale or a car boot sale.

Achieving the right price and orchestrating a seamless transition of ownership demands careful attention and effort. The objective is to ensure a "friction-free" sale, but certain protocols must be followed.

All Exits Require a Plan: The first step is to prepare a set of accounts, preferably for the most recent three years. Buyers will base their offers on your recent profits, so detailed accounts are crucial.

There's a critical calculation known as Sustainable Transferrable Operating Profit (STOP). This calculation considers sustainable operating profits, minus owners' drawings, lifestyle benefits, tax, interest, and extraordinary items.

Your buyer will offer their STOP calculation based on their assessment of your business. As the seller, you should consult with an accountant to determine your own STOP figure.

Keep Your Momentum: When franchisees decide to sell, they might unintentionally reduce their efforts. However, this is the last thing you should do.

It's actually the worst thing a business owner can do. You must keep your business running at maximum capacity. The sales process can take anywhere from six to 18 months, and the last thing you want is for profits to decline during this period.

Once you decide to sell your business, it's essential to find a reputable broker and leverage the resources and experience provided by the franchisor. There are numerous brokers willing to assist, but it's advisable to use a BFA (British Franchise Association) accredited broker for the sale preparation.

Additionally, make the most of your franchisor's resources to create an appealing and comprehensive sales prospectus. As a franchisor myself, I expect my franchisees to eventually sell their businesses. Therefore, good franchisors are prepared to support their partners in the sales process.

Collaborate with Your Franchisor: Franchisors are well-equipped to assist franchisees in preparing for an exit. They have likely guided franchisees through this process many times before. It's worth noting that franchisors have the right to veto any purchase if they believe the buyer isn't suitable.

Most franchise agreements include a section concerning "exit fees," covering costs such as training, marketing, and stationery.

As soon as a franchisee decides to sell, they should inform the franchisor as early as possible to ensure a smooth process with no unexpected expenses.

Franchisors can help franchisees set a realistic price. However, buyers typically focus on current performance, not potential. It's important to consider both agent and franchisor fees in your selling price.

The Final Steps: Once you have a plan, a well-prepared prospectus, and a preferred sale price, it's time to engage legal counsel. I recommend using a BFA approved solicitor. They understand the intricacies of selling a franchise, which can help streamline the process.

Selling a franchise, or any business, is never without its challenges. However, with careful planning and collaboration with the franchisor, the process can be as smooth and painless as possible.