In an ideal world, you would sell your franchised business quickly and for a profit. Unfortunately this isn’t always possible.
There are a number of things that can go wrong; set out below are some practical considerations and matters that you need to consider and be mindful of when selling your franchise business.
In order to achieve the best price for your business, you need to be prepared. The sale of your franchise business is a major decision. If you leave the preparation too late, you may end up accepting a lower price for a quick turnaround. In our experience many franchisees are not ‘sale-ready’. This can often delay or prevent a successful grant and transfer of the franchise and lead to strained relationships between the outgoing and incoming franchisees and the franchisor.
In order to ensure things go smoothly you should read and understand the transfer clauses within your franchise agreement, have financials and other documentation ready to discuss with a prospective purchaser.
You should ensure the business is running as efficiently as possible as potential buyers will want to observe the business in action prior to making a decision that this business is worth the asking price.
You should have realistic expectations of the value of the business and have ready your valuation rationale for your business. Potential buyers will often ask how you arrived at the asking price. You will need to ensure you can justify the purchase price.
Things become more complicated if your business is not profitable or if the franchise network is under-performing and there is a lack of support from the franchisor. You need to be careful that you do not misrepresent your business or its potential earnings to a purchaser. You could unknowingly be engaging in misleading and deceptive conduct. Misrepresentation is often made about turnover, customer traffic and franchisor support and training.
You may need to think about a realistic exit strategy and focus on any issues that may lessen the value of the business. This may include upgrading technology and record keeping systems which increase the efficiency of your business and assist compliance with your franchise agreement and fair work requirements.
An alternative option is to offer the business back to the franchisor. In most franchise networks the franchisor will have a first right of refusal to buy-back the business, whereby you are required to offer the business to the franchisor first (on the same terms and conditions) before offering it to a third party. If the franchisor does not wish to buy-back the franchise business and you have found a suitable purchaser, you should be aware that you may be required to pay transfer or assignment fees under your franchise agreement. You should also check the restraint provisions and ensure that you will not be in breach of any ongoing obligations once you sell the business.
If your business is operated from a leased premises, you should also check the term remaining on the lease and check the assignment or transfer provisions. Landlord’s consent may also be required before you sell your business. Similarly, the landlord has the right not to consent to the assignment or transfer of lease if the landlord feels the tenant (as the prospective purchaser of the business) does not have the appropriate experience or financial standing to be a tenant or is unable to provide the necessary security (i.e. cash bond or bank guarantee).
Once you have secured the purchaser of your business, you should make sure that you are released from all guarantees and obligations under the franchise agreement, the lease and all other contracts.
The above complexities need to be ‘front of mine” when you are considering the sale of your franchise business. It is very important that you get the right expert franchise advice from the outset, as some legal practitioners do not have deep franchising knowledge when advising franchisees on a franchise sale/purchase, and/or do not fully understand the franchise business model, resulting in protracted negotiations with the franchisor, the landlord and the prospective franchisee purchaser which may result in delays and occasionally the deal may fall over.
At Manookian Solicitors we have the franchising expertise and knowledge to ensure the process is concluded in a timely manner and without delay. You can rest assured that the team at Manookian Solicitors have the depth of franchise experience required to ensure matters referred to it are completed in the manner you would expect from a firm such as Manookian Solicitors. Contact Rostom Manookian, 0416 716 960 or email rostom@manookiansolicitors.com to discuss how we can assist and prepare you for your sale. We offer fixed fee legal services to give you clarity and transparency, with no surprises.
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