How to Sell a Restaurant Franchise: What a Buyer Wants to See
You own a restaurant franchise, and a buyer has just asked what they would be buying. How to sell a restaurant franchise comes down to one answer: show a location that runs, on records, under terms your franchisor will approve. Three things carry the proof: the numbers behind your sales, what your lease and equipment mean for a buyer, and what your franchisor decides. This article covers each of the three.
What is a buyer actually buying when they buy a restaurant franchise?
A buyer is buying the right to run your location under the franchisor's name, its sales record, its equipment and fit-out, and the site it sits on. Each of those comes with a condition, and the franchisor's approval ties them together.
That makes the sale different from a franchise built around people, which our article on how to sell a staffing agency franchise takes up. In a restaurant, much of what a buyer sees is a place: a kitchen, a dining room, a lease.
In a franchise, the recipes and methods may come from the franchisor's system, not from you. If so, what a buyer needs from you is the right to use that system, and that right depends on the franchisor's approval.
What follows is the set of questions a careful buyer has to get answered before believing the location stands without you.
What do buyers look at in the numbers?
A buyer will want monthly sales, what you spend on food and on staff, and what you pay the franchisor. Expect to be asked for all three, and for the reason if any of them moved.
- Monthly sales. A buyer will look at how steady the months are across the years you have.
- Food and staff costs. Keep the books as they are. How earnings are adjusted for a sale is work for the people who value franchises every day, so bring the records, not your own recast.
- Fees to the franchisor. The royalty and the other fees your agreement sets come out of those sales. Our article on franchise royalty fees explains where they are listed and how to read them.
- Recent change. If sales or costs moved lately, a buyer will ask why. Know the answer before the question comes.
How a buyer turns any of this into a price is a valuation question. How the sale is taxed is a question for your CPA.
Does my lease or the building change the sale?
It can, and the lease itself says how. Whether a lease can pass to a buyer, and on what terms, is written in the lease and decided with your landlord, so read it before a buyer does.
Two places in the Franchise Disclosure Document touch the site. The federal rule that sets out the document, 16 CFR 436.5, describes what a franchisor must disclose, not what your lease says.
- Item 7 asks the franchisor to disclose the estimated initial investment, which includes real property, whether purchased or leased.
- Item 11 asks whether the franchisor selects the site or approves an area in which the franchisee selects one, and covers locating a site and negotiating its purchase or lease.
If your franchisor helped choose or negotiate your site, ask in writing whether it has a say when the lease moves to a buyer. Leases hold more than fits here, so this article stays brief on them. Take every question of what your lease requires to a franchise attorney.
What about my equipment and the franchisor's standards?
A buyer will ask whether your equipment and systems meet what the franchisor asks today, and whether the franchisor would ask them to update anything as part of the sale. Only your franchisor can answer, so ask it.
Item 8 asks the franchisor to disclose what a franchisee must buy or lease, including fixtures, equipment, and computer hardware and software, from the franchisor, its designee or approved suppliers, or to its specifications. Item 11 asks whether the franchisor requires electronic cash registers or computer systems. Those are disclosure headings. They do not tell you what your agreement requires of you or of a buyer.
What a franchisor requires of a buyer's equipment, or of a remodel, varies by franchisor. Item 17 lists, in the rule's row labels, "Conditions for franchisor approval of transfer" (row (m)). That is a label, not a term. Your agreement holds the terms. Who would pay for any update is a matter between you and a buyer.
What does my franchisor decide?
The franchisor's approval is part of every sale. Item 17 names three rows that bear on a transfer: franchisor approval of transfer by the franchisee (row (l)), the conditions for that approval (row (m)), and the franchisor's right of first refusal to acquire the franchisee's business (row (n)). The labels tell you where to look. Your agreement holds the terms.
Licenses and permits for serving food or alcohol are set by state and local authorities. How they pass in a sale varies by place, so ask your attorney and the licensing office what applies to yours.
If the end of your agreement is close, ask a franchise attorney how the time left bears on a sale.
What should I do first?
Four steps, all within your control:
- List monthly sales and costs for the years you have, and note anything that moved and why.
- Pull out your lease and your franchise agreement, and mark the pages on transfer, term and equipment.
- Ask your franchisor in writing what it requires of a buyer and of the equipment and systems.
- Get a current number before you speak to a buyer.
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 tell us you run a restaurant franchise.
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. This article is general information, not legal or tax advice. Your franchise attorney and CPA are the people to ask about your agreement, your lease and your taxes.
Frequently asked questions
A buyer is buying a running location, so continuing sales are part of what you can show. Before you change how you operate, ask your franchisor in writing and a franchise attorney what your agreement says about closing for a period.
A buyer will ask why, so have the answer before they do. Show the months, say what changed, and keep the records as they are. How much it moves the price is a question for a valuation.
There is no general answer, so decide before a buyer asks to meet your team. Confidentiality is available throughout, and you choose how much of the business a listing shows. You do not have to list your franchise, tell your staff, or commit to anything to begin.