Selling Your Franchise to Another Franchisee in Your System

Selling Your Franchise to Another Franchisee in Your System

A franchisee in your system has asked what you would take for your location, or you have wondered whether to ask one. If you want to sell your franchise to another franchisee, the sale is still a franchise sale: the franchisor still has to approve the buyer, and you still need a current number before you talk price. What changes is who the buyer is, what they already know about your location, and who else hears about it. This article covers those three things.

Is another franchisee a different kind of buyer?

Yes, in one way that matters: they already hold a franchise agreement with your franchisor. A buyer new to the system has the whole brand to learn. A franchisee already in it has learned part of that by operating.

Franchisors report that these buyers exist. In Franchise Update's 2024 Annual Franchise Development Report, 120 brands answered a question on where transfers come from. 76 percent named new buyers, 69 percent named existing franchisees within the system and 17 percent named franchisees with another brand (Kevin Behan, franchising.com, 2024-11-06). The three add to more than 100, so they overlap, and they are franchisors' answers, not counts of buyers or sales.

Your own system may differ, since those figures cover many brands at once.

Will a franchisee in my system pay more or less than other buyers?

There is no general answer. What a neighbor would pay depends on your numbers and your location, and the number comes first.

Here is what can push it either way:

• They know what the brand takes to run. A buyer who operates a location has less to learn about the system than a first-time buyer, which may change how sure they are of what they are buying.
• They can set your numbers beside their own. A figure with no explanation behind it may get noticed faster. A figure backed by records is easier to defend.
• They may be buying for a reason a first-time buyer does not have. Adding a location, or reaching customers beside their own, could change what your location is worth to them.
• They may have less room to pay. A franchisee already carrying a location has money and borrowing tied up in it.

The remaining term on your agreement and the timing of any renewal affect value and timing for every buyer, a neighbor included. Do not set a price from what you imagine a neighbor would pay. Get a current number first.

What does telling a franchisee in my own system put at risk?

It puts at risk your control over who hears next. A franchisee in your system may know your franchisor's people, other owners in the system and perhaps your own staff and customers, so one conversation can travel further than one with a stranger.

When we run a sale, confidentiality is available throughout and you choose how much a listing shows. That covers how the business is presented to buyers. It cannot control what a person you speak to yourself says afterward. Settle these before the first conversation:

• What will you share? Your location's results, your reason for selling and your price are three separate disclosures. Decide each one on its own.
• Who else could hear? Staff, customers, your landlord, your franchisor and other owners in the system.
• What if they say no? They then know you are selling, and they know whatever you told them.
• Is anything in writing? A confidentiality agreement is a legal document. Have a franchise attorney prepare it or read it before you ask anyone to sign.

Being open with your system is a legitimate choice too. The point is to make it on purpose. For the wider question of who finds out and when, read keeping a franchise sale confidential.

What does my franchisor have to decide?

Whether to approve the buyer, as with any buyer. Franchisor approval is part of every sale, and a buyer from inside the system still has to clear it.

The FTC's Franchise Rule has a franchisor describe, in Item 17 of the Franchise Disclosure Document, "Franchisor approval of transfer by franchisee," "Conditions for franchisor approval of transfer" and "Franchisor's right of first refusal to acquire franchisee's business" (16 CFR 436.5(q), rows (l), (m) and (n)). Those are row labels. They tell you where to look in your disclosure document and agreement, not what yours says.

Do not assume a buyer already in the system gets an easier review, or a harder one. Ask your franchisor in writing what it requires of a buyer who already holds a franchise agreement, and have a franchise attorney read the answer against your agreement. That is the one step here to hand to a professional.

Should I approach one franchisee or let more buyers see it?

The choice is yours, and each path has a cost. Approaching one franchisee keeps the circle small and the first conversation simple. The cost is that you get one view of the price from one buyer, with nothing to compare it with. Letting more buyers see the business gives you other views, and the circle grows, though you decide how much a listing shows.

If the buyer you have in mind works for you rather than owning a location in your system, that is a different sale with different questions. See selling your franchise to a key employee.

What should I do first?

Four steps, all within your control:

1. Get a current number before you name a price to anyone.
2. Read the transfer, approval and right of first refusal sections of your agreement, then ask your franchisor in writing what it requires.
3. Decide what you will share, and with whom, before the first conversation.
4. Write down the questions you want a buyer to answer, such as their funding and their plans for your staff.

A free Opinion of Value is that number, and it commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value and say that you are weighing a buyer from your own system.

If you decide to sell, we help with buyer screening, due diligence and offer negotiation, franchisor approval, paperwork and closing steps, and confidentiality is available throughout. Our sell a franchise page shows how we work with owners.

Frequently asked questions