No business owner has ever been permanently wedded to the actual business in question, and franchising is no different. There may come a time when you’ll wish to sell your franchise location and retire, or transfer control to a successor. In those instances, it helps to understand the criteria needed before you can legally make your move.
Thankfully, the act of selling or transferring control of your franchise location isn’t very difficult, provided you’ve done a little homework. The following is a series of things you’ll want to be aware of before you start planning your exit strategy. Adherence to these tips will prepare you for any scenario, while helping you avoid any snags or complications you hadn’t thought of.
UNDERSTAND THE RULES
In order to prepare for sale or transfer of control of your franchise location, you’ll need to be aware that the franchisor in question will have a say in the matter. This is part and parcel of how franchisors operate, which in turn allows them to keep tabs on their brand reputation. Handing over a franchise location to someone unqualified risks harming that reputation if they are unable to handle the ins and outs of a proprietary business model.
Therefore, you’ll need to have your franchisor involved on any business transactions you make. They’re the ones who originally green-lit your franchise license, which means they’ll want to do the same thing for the next person waiting in line to take over. These rules and qualifications differ per franchisor, but most of them are rooted in legal common sense. For instance, the new buyer will have to go through the same franchise agreement that you went through, in order to make sure that all details have been taken into account.
You may also be required to settle all debts and/or payment defaults to the franchisor before you are allowed to sell to another buyer. This prevents problematic legal overlap when the new buyer takes over. Essentially, you’ll need to be free and clear of your own obligations before the new buyer can step up to the plate and take on theirs. This, in turn will avoid messy lawsuits or conflicts between yourself and the new owner, which can in turn drag in the franchisor.
Before anyone signs on the dotted line, the franchisor must give the go-ahead. They’ll only do this after making sure that all details have been taken care of, such as a credit and background check on the new buyer. This will in turn guarantee that they’re able to assume the financial responsibilities of owning the franchise, while avoiding things like loan defaults and unpaid bills.
And finally, a transfer fee may be required in order to legally transfer the sale of the franchise location to the new buyer. This will be paid directly to the franchisor.
TRANSFERRING TO A FAMILY MEMBER
If you wish to bequeath your franchise location to a family member so they can continue the business, you should first check with your franchisor to see if this is possible. Different franchisors have different rules regarding who can legally take over the franchise, and transfer to a family member may, or may not be in the cards.
Always remember that franchise agreements tend to reserve specific key rights for the franchisor, which can include right of first offer, and first refusal, as well as the right to purchase the location upon the death or disability of the main franchisee. Therefore, the franchisor may deem it more prudent to refuse the transfer to a family member, in favor of selling to someone with more experience and a stronger financial record. It all depends on the specific conditions of your agreement. When in doubt, contact your franchisor and discuss the matter to see which options are available to you. Theoretically, there should be room for some flexibility.
TIPS ON SELLING
There are a few key tips when it comes to succession that will benefit franchisees. A few of them include:
1) Make your decision earlier, rather than later. This will allow you to examine your financial records and come up with a solid sales plan that will resonate with potential buyers. Don’t wait until the last minute, or you might encounter setbacks you hadn’t anticipated, which will drag out the process.
2) Sell as early as possible. This means making a hard push to attract buyers who will snap up your franchise location quickly. The longer your listing stays up, the less attractive it may look to buyers who think its future is uncertain. When in doubt, consider hiring a Business Broker for assistance.
3) Get a proper appraisal. This will help you determine the actual value of your franchise location, which in turn will help greatly when you’re making a pitch to buyers. It will also help you sell for the most money possible, which is a definite plus. Similarly, a proper appraisal will help when buyers go to the bank or another lender for a loan.
4) Always keep your franchisor in the loop. Don’t wait until the contract has been drafted before you spring the surprise on them. Let your franchisor know your intentions early on, so they can stay aware of how the sale is progressing. The more your franchisor knows about your sale or transfer, the more prepared they will be when the time finally arrives. Plus, they can probably help out in ways you hadn’t thought of.
CONCLUSION
Remember that signing on the dotted line does not mean you can simply sit back and let your responsibilities wane. You’ll still be required to maintain the standards and operations of your franchise location. It’s also good practice to stay on for a few weeks so you can assist the new owner with the ins and outs of your franchise location. This can help bridge the gap between your staff and the new owner, facilitating a positive and upbuilding transition.
In the end, selling or transferring operation of your franchise location can be done, provided you know that there’s a third party involved in the form of the franchisor. Be transparent, positive and friendly, and it will go a long way towards making all sides – including you – happy with the overall business transaction.
Interested in starting your own franchise location? Contact us at St. Louis Bar & Grill, as we’re currently expanding into the highly lucrative United States market. There’s massive opportunities just waiting for you, and we’d love for you to become part of our franchising family!
