Deal Breakers to Avoid When Selling a Franchise
When a franchise sale does not go through, the reason is sometimes major and sometimes surprisingly small or personal. Many deal breakers, though, are avoidable if you know what to watch for. Here is a practical look at the issues that most often derail a franchise sale, and how to keep them from sinking yours. (For the diagnostic view, see why franchise sales fall through.)
Getting stuck in the details
Buyer and seller usually agree on price and basic terms early. The real challenge is in the details that follow: representations and warranties, employment contracts, non-compete clauses, and penalties for breach. Even friction between the two sides’ advisors during due diligence can stall things. Aligning on these points, and on how the deal is structured, keeps small issues from becoming deal breakers.
Buyer-side problems
Deals stall when buyers lose patience and abandon the search too soon, or when they are unfocused and unclear on why they are buying. Others find a near-perfect fit but balk at the price, not realizing a strong fit often warrants it. Undercapitalized buyers who cannot secure financing, and inexperienced buyers who skip experienced advisors, create problems too.
Seller-side problems
On the seller side, unrealistic price expectations and second thoughts, especially in family businesses, are common. So is inflexibility: demanding all cash at closing or rigid terms discourages qualified buyers. Sellers who do not fully cooperate with their advisors slow everything down, and one of the biggest self-inflicted wounds is letting the business slip during the sale, which drops its value right when it matters most.
Know when to step back
Most of these are avoidable with preparation and realistic expectations. But if a deal simply will not come together despite good-faith effort, recognizing that early, and stepping away, is better than forcing an outcome that will not hold.
Frequently asked questions
What is the most common deal breaker in a franchise sale?
Unrealistic pricing and inflexibility on terms are among the most common, along with financing gaps on the buyer side and a decline in the business during the sale.
How do I keep my franchise sale from falling apart?
Price realistically, stay flexible on structure, keep the business performing, cooperate fully with your advisors, and address the fine-print terms early rather than late.
Should I keep running the business while it is for sale?
Yes. A dip in performance during the process lowers your value and can break the deal. Run it as though it is not for sale until closing.
Selling your franchise?
Avoid the common traps with the right preparation. Talk to Franchise Sellers, or call 800-499-4280.