Can you sell your franchise?

While many individuals buy a franchise because they want to manage and grow their own business over time, there are a significant number of others who sign a franchise agreement with the intention of building the business for eventual resale. A resale can be a fantastic way to generate a relatively quick return on investment, but it’s not always as easy as it sounds.

As with all aspects of the franchise business model, resales can be complicated by the franchise agreement. While franchisees may be under the illusion that they’re free to sell their franchise whenever they want, this may not reflect the reality of the situation. Here, we take a look at whether franchisees are free to sell their franchise at their discretion.

Franchise resales

Franchise resales are a popular way to earn a healthy return on your franchise investment. Some entrepreneurial individuals have spent their entire careers and made a considerable amount of money building up new franchise units for sale further down the line.

In fact, a recent survey conducted by the British Franchising Association (BFA) and NatWest revealed that 13 percent of franchisees buy a franchise specifically to increase their investment with a resale. This constitutes a considerable number of people and suggests that franchise resales are important to a significant proportion of franchisees. Yet, selling a franchise isn’t always as easy as it sounds. In some cases, franchisees find themselves facing many challenges.

>> Read more:

• How and When Can You Resell Your Franchise?
• Selling A Franchise - How To Do It The Right Way
• Are you free to sell your franchise?
• How to prepare for selling your franchise

There are always conditions

Although a franchise resale is usually possible in theory, it’s important to remember that there are often conditions you'll have to meet to push ahead with the sale. This can be a major sticking point for franchisees, as many enter into the franchise contract fully intending to sell the franchise for a profit once it’s established. If they’re not careful, certain contractual conditions may prevent them from doing so.

In such cases, the relationship between the franchisor and franchisee can quickly deteriorate and problems can escalate. Franchisors aren’t always as forthcoming about resale conditions as they could be, so franchisees need to take on the responsibility themselves and ensure they’re aware of all contractual stipulations.

What are the typical conditions associated with franchise resales?

In most cases, franchisors attach a relatively similar set of conditions to franchise resales. These include:

• Payment of any costs incurred by the franchisor – This is fairly self-explanatory and involves covering any costs, such as legal or financial fees, incurred by the franchisor because of the resale.

• Retraining staff and preparing the next franchisee – Some franchisors will stipulate that franchisees must retrain their team to a certain level and introduce the new franchisee to the business in order to progress with the resale.

• Upgrade the business – In some cases, the resale will depend on the outgoing franchisee upgrading the company before they leave. This usually involves meeting certain minimum standards and ensuring all technology and equipment are up to date.

• Obtaining the franchisor's consent – A large number of franchisors will insert a clause in the franchise agreement stipulating that resales can only go ahead with the approval of the franchisor.

Potential problems

Although most of the conditions listed above seem simple enough, they can cause complications and lead to difficulties with the resale. Primarily, obtaining the franchisor’s consent can prove problematic. Essentially, this clause leaves all the power in the franchisor's hands, and they can make or break the resale deal.

While most franchisors will respect the franchisee’s desire to move on and won’t want to work with a franchisee who isn’t fully committed to the business, some won’t sanction a resale if they don’t perceive it to be in their interest. In such a case, the relationship between the franchisor and franchisee can quickly weaken, causing further issues and resulting in a deadlock.

Ways to ensure resale is possible

The best way to ensure a resale will be possible in the future is to carefully comb through the franchise agreement before you sign it. Check for resale clauses and conditions and talk to your franchisor about the possibilities of a resale. Everything you need to know should be included in the contract, and a franchise lawyer will be able to help you decipher any complex or confusing wording.

It’s also a good idea to talk to existing franchisees about their experiences. Have they ever attempted to sell their franchise? Do they know of any ex-franchisees who have resold their franchise unit? Are franchise resales common or completely unheard of? Is the franchisor easy to work with and are they honest with their franchisees?

The principal consideration

When considering whether selling a franchise is a possibility or not, the paramount consideration should be the attitude of the franchisor towards resales. The vast majority of the time, franchisors won't block a resale unless it is particularly disadvantageous to their business. However, in some cases, a franchisor will actively try to prevent a franchise resale. If certain conditions have been inserted into the franchise agreement, they're likely to be able to do so.

Consequently, franchisees need to do their research, look at the franchise agreement, the franchisor's history and talk to existing and former franchisees. This should give you some insight into the franchisor’s likely response to the news of a resale and allow you to make a more informed decision. This is particularly important if you're specifically buying the franchise to build it up and sell it on.

What to do once you’re a franchisee

• Establish a dialogue with the franchisor – Once you’ve joined the business, excellent communication with the franchisor is essential to a healthy partnership. An honest relationship and regular dialogue will help ensure that most problems are avoided, and that the relationship doesn’t deteriorate to the point that the resale is held up.

• Prepare the paperwork – You’ll be able to transfer your franchise unit to the new franchisee more efficiently if you ensure all the paperwork is in place. Often, franchisees find that formal contracts need to be provided for employees, suppliers or customers. If you don’t already have these to hand, make sure they’re ready before you initiate the resale process.

• Start planning well in advance – If you know you want to sell your franchise when you first buy it, you’ll be able to keep your eyes open for potential buyers. You don’t necessarily have to look beyond the business; you may recruit an employer who turns out to be a perfect candidate for franchisee. If you identify a suitable employee who is interested in taking on the business, you could save yourself money, as franchisors often charge franchisees a fee for finding a buyer on their behalf. This solution should suit you both, as it’s likely the employee already has good knowledge of the business and how it’s run, which will save time and money on training. They may even have fresh ideas about how to improve it.

• Wait until the franchise is performing well – If you want to get the best possible price for your business, you should avoid listing it when it is experiencing a financial slump. Of course, prospective franchisees will want to look at documents detailing the business’ history, so they’ll know if its performance is uncharacteristic. Make sure you have at least several months of positive performance behind you, as this will make the franchise unit more attractive in the eyes of potential buyers.

• Spread the word – You may have developed a fantastic business with a great track record, but you’re unlikely to get a good price for it if you don’t get word out. Advertise on popular internet sites and forums where potential franchisees would look. If you haven’t identified a potential buyer in the business itself, consider reaching out to fellow franchisees in your region to see whether they could put forward anyone suitable.

• Seek professional guidance – Although no one knows your business better than you do, it can be helpful to consult a professional when it comes to selling your franchise unit. You should already be in conversation with your franchisor, but consider talking to bank representatives, financial advisors and solicitors. They should be able to give you valuable guidance on every aspect of selling the franchise, as they probably will have experienced franchise resales before. Be open and honest about what you want to achieve, and don’t be afraid to ask questions. You never know, they may be able to secure a better price for your business.

• Don’t get distracted – It can be easy to get wrapped up in organising your franchise resale once you’ve decided to go ahead with it. But don’t forget that your business is only valuable as long as it’s profitable! Continue to put 100 percent into any day-to-day tasks you have to do to make sure it performs well and try not to neglect any areas of the business. In short, until you’ve signed on the dotted line, carry on running the franchise unit as you would were you not selling it.