Keeping a Franchise Sale Confidential: Who Finds Out, and When

Keeping a Franchise Sale Confidential: Who Finds Out, and When

You are thinking about selling your franchise, and you do not want your staff, your customers or the owners down the road to hear it before you are ready. Keeping a franchise sale confidential comes down to deciding who finds out, and when. Confidentiality is available throughout a sale, and you choose how much a listing shows. It is not a guarantee that nobody ever learns, and one party, your franchisor, is part of every sale. This article takes each group in turn.

Can a franchise sale be completely confidential?

No, and anyone who promises it is overselling. What is available is a choice about how much a listing shows, and your stated preference decides the level. There are three:

• The most private level: no brand named, state only.
• The middle level: brand named, state only.
• The open level: brand and location.

The tradeoff runs both ways. A listing that hides more gives a stranger less to go on, and a listing that names the brand lets a buyer who knows the system judge the business sooner.

Two more points are worth knowing. A listing is an advertisement, so even with the brand hidden, what remains (the state, the kind of business, how it is described) can let a person who knows the area guess. And details beyond the listing are released to a buyer under a non-disclosure agreement, not in the listing itself.

Does my franchisor have to know, and when?

Yes. Franchisor approval is part of every sale, so the buyer has to clear the franchisor and the franchisor will know before closing. What is open is when and how, and your franchise agreement may decide that.

The federal rule shows where to look. Item 17 of the Franchise Disclosure Document has rows for the transfer of a franchise: "Transfer" by franchisee, franchisor approval of transfer, conditions for franchisor approval of transfer, and the franchisor's right of first refusal to acquire the franchisee's business (16 CFR 436.5(q), rows (k) to (n)). Those are the subjects the franchisor must disclose. They do not tell you what your agreement requires of you, or whether it requires you to notify the franchisor before you market the business.

That last point depends on your own agreement. So read the transfer sections of your agreement with a franchise attorney before you tell anyone, including the franchisor. That is the one step here to hand to a professional.

When should I tell my staff?

Decide the order before you list, and tell your manager before a buyer asks to meet them. A buyer will want to see the business and the people who run it, and a visit is hard to hide.

Three questions to settle first:

• Who must know early? The manager a buyer will weigh, and the accountant preparing your records.
• What will you say if a team member asks before you are ready? Pick one honest answer and give it every time.
• Could the buyer be a member of your team? Then they know already. Our article on selling your franchise to a key employee covers that case.

Whether to offer staff a reason to stay through the sale is a decision for you and your advisers.

What about my customers, suppliers and landlord?

Customers and suppliers do not need to be told while you are still deciding. What a customer sees is the brand and the team, so plan what you will say if one asks, and say the same thing each time.

Your landlord is a separate question. A lease may say whether and when the landlord must be told, or must agree to a change of owner. Read yours with your attorney before you list.

How do I keep other owners in my franchise system from finding out?

You cannot fully control it, so decide how much to show. Franchise systems can be small worlds, and the people in yours may know each other.

One reason is in the rule. Item 20 of the disclosure document must list the names of current franchisees and the address and telephone number of each outlet, or, under an alternative the rule allows, a state-based list (16 CFR 436.5(t)). A buyer who holds a disclosure document therefore has a list of owners to call, and yours may be on it. Whether a buyer in a resale receives one is a question for the franchisor.

The sharper case is a buyer who already owns a location in your system. They know your neighbors, and what they learn from you can travel. If that is who you expect, read selling your franchise to another franchisee before you share more than a listing shows.

What should I do first?

Four steps, all within your control:

1. Choose the level you want, from the three above, and write down who should know and in what order.
2. Have a franchise attorney read the transfer sections of your agreement before you tell anyone.
3. Prepare one honest answer for staff or customers who ask early.
4. Get a current number before you speak to a buyer.

A free Opinion of Value is that number. 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 how private you want to be.

If you decide to sell, we help you decide how much to show, confidential or branded. We also 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