5 Step Process to Sell A Franchise Business
When a franchisee decides to sell their business, in most cases this is the first time they have gone through the process. Here we have outlined the steps in the process for selling a franchise.
To set yourself apart from most sellers, you should take the time to document everything you can about the business as an overview you can provide to potential buyers. This overview should provide the buyer with information such as:
1) Why are you selling the Business
2) When was the business established
3) What are the strengths of the business
4) What challenges need to be addressed to assist the new owner in improving the business
5) What have the annual sales been during your ownership 6) What has the cash flow been during each of those years
7) What assets come with the purchase of the business
8) What are the terms of the lease if applicable
9) How much are you asking for the business
10) Will you be providing any training/ support after the sale.
Of course, you can also add any other pertinent information that you deem necessary. The potential buyer will appreciate the insight you are giving them, and you will be providing them with a tool that most sellers will not have to offer.
Once you list your business for sale, it is imperative that you set aside some time every day to follow up with these inquiries. When someone enquires about your business there is a high level of enthusiasm on their part. Make sure that you are responding to these inquiries as quickly as possible to start the selling process. If it takes you days or weeks to get back to them they will lose their enthusiasm and may have already found another opportunity.
The most common issue that potential buyers encounter is being able to get their hands on the financials for the business of interest. After all, this is the most important factor for them when considering which business to purchase. Therefore, it is imperative that you have an accurate and up-to-date set of financial statements for their review. We recommend at least the last 3 years of financials, but more is better in this case.
If you haven’t done a good job of keeping your financials organized and need assistance with this, we suggest you reach out to one of our accounting partners to help prepare a clean and thorough set of financials. If you are reluctant to share this information with each potential buyer, you should contact a lawyer from our professional resources page to draw up a Non-Disclosure Agreement. This will help protect the privacy of this information.
The hardest part of selling a business is defining a price. After years of hard work and investing a good amount of money into your business, there is no doubt an emotional connection that will influence this decision. In order to find the fair market value and eliminate your emotions, it is best to leave this process to a professional.
A valuation expert will provide an objective assessment of your business by studying the market, reviewing your financials, valuing your assets, and considering other facets of your business depending on the industry in which you are involved. The valuation expert will then provide you with a report and a fair market value for your business. This is a great tool to have when selling your franchise business.
The next step is for you to contact a lawyer to assist you with the sale of your business. Our legal partners can prepare a Non-Disclosure Agreement, Letter of Intent (LOI), purchase agreement, and any other legal document needed based on the type of business you are selling.
The attorney will also hold your hand through the entire franchise selling process and assist you with closing the deal. For a transaction that has no real estate and no intricacies, you could pay as little as just a couple of thousand dollars for legal representation. Compare that to the 10% the broker would collect.
Get the Word Out
In many cases the seller of a business wants to keep the sell a secret from their employees. What they don’t realize is that those employees may be the best source of lead generation they can get. The employees are familiar with the business, hopefully have some passion for the business, and in some cases may have a financial backer who could assist them with purchasing the business.
At the very least, the employees will spread the word which could lead to interest from someone in your community. You can also utilize social media to get the word out. If your friends and family hear how successful you have been and how much you have enjoyed the business, they may have an interest in taking over. The advice we would give you is don’t keep it a secret. Tell everyone you know to increase the odds of a quick sale.