How to Sell a Franchise Business
These 9 Steps Will Save Franchise Owners Tens Of Thousands Of Dollars
By leveraging the power of technology and automation, industry forms, and online advertising, there has never been an easier time for business owners to value, market, and sell their franchise business ‘on their own, but not by themselves’. In addition, by using these tips, they can save the large commissions (often 10% of the selling price) charged by full-service business brokers. Follow these steps to learn how to sell a franchise business.
Preparation For Sale
Prior-Proper-Planning-Prevents-Poor-Performance! If time is on your side, the best things that you can do to prepare for the selling process is as follows: 1) As the owner, don’t be the secret sauce. 2) Raise up other managers. 3) Cross-train. 4) Focus on branding. 5) Put systems and redundancies in place. 6) Clean up your books. 7) Normalize all wages to market value. 8) Stop paying for personal or one-time expenses through the business.
Determine Business Value
Next you’ll need to determine the fair market value of your business. There are many levels of valuation reports ranging from hundreds to thousands of dollars. In most cases, a Summary Opinion Of Value & Key Indicator Report is enough.
Create A Business Profile For Buyers
Once you are comfortable with the established value range and have decided on a ‘go to market’ asking price, you’ll need to create a 1-5 page Business Profile, which you will provide to qualified buyers. Sometimes called an offering memorandum, or Confidential Information Memorandum (CIM), the Business Profile should include a business description, history of the business, information about the franchise concept, why you are selling, financial summary, and more. Sometimes business profiles also include video interviews and tours.
Another crucial step in learning how to sell a franchise business is advertising your business for sale on some or all of the major business for sale search portals including BizBuySell.com, BusinessBroker.net, BusinessesForSale.com, BizQuest.com, LoopNet.com, DealStream.com (formerly MergerNetwork), GlobalBX.com, Axial.net, and more depending on industry, size, location, etc. To remain confidential, you will need to sell “the sizzle” but not “the steak”. Ads must be created in a way where the reader will get excited enough to ask for more info, but cannot know exactly what business it is without inquiring further.
As each buyer responds to your ads, make sure that the buyer first signs a non-disclosure statement (NDA), and that that they have the skills and financial resources required to purchase your business. Once you have qualified the buyer, you will email them your Business Profile. You will continue to reach out to each buyer until they either agree to submitting an offer, or until they go away.
Offer / Counter Offer / Due Diligence
Leaning heavily on your primary business advisors (accountants, attorneys, financial planners, business brokers, etc.), you will work with the buyer to negotiate the letter of intent, counter-offer, and asset/stock purchase agreement.
Franchisor Disclosure and Discovery
As soon as possible. upon acceptance of an offer, you will want to make sure that the buyer has reached out to your Franchisor to start the franchise disclosure, discovery, and qualification process. There are a few deadlines that have to be met before the Franchisor can approve the buyer as a new franchisee. This includes the buyer receiving the Franchise Disclosure Document (FDD) and going to Discover Day. It is common to experience a delayed because this step wasn’t taken care of early on!
Business Loan Approval
Your buyer will almost always require some form of financing, whether it be a conventional loan, asset loan, SBA guaranteed loan, factoring, home-equity loan, or seller financing. The most common business loan by far is the 7(a) business acquisition loan through the Small Business Administration (SBA). The SBA lending process is long and difficult. Make sure that the buyer is working with one or more lenders (preferably 2-3) to get loan approval. This will take 60-90 days or more. Buyers should be working with lenders simultaneous to all other aspects of due diligence.
The closing process is different depending on your state. It is imperative that you work with a reputable business attorney and accountant to review (or create) all closing documents. You could also engage a business broker to guide you through this process. Depending on your state, the Closing will be facilitated by either a title & escrow company, the buyer or sellers’ attorney, or a third-party attorney that represents the ‘transaction’.
Prefer to work with a professional to sell a franchise business? Franchise Sellers was originally launched in 2005 to assist existing franchise owners with the multifaceted franchise resale process. They have used that experience to create and refine a 9 step ‘Franchise For Sale By Owner Toolkit”. Franchise Sellers can be found at www.franchisesellers.com or 800-499-4280.