Five questions to ask before you sell your franchise business
Selling a franchise business requires just as much thought as buying one. Is selling the right decision? When is the right time? Who will buy it?Taking the time to think about questions like these will help you get the best price and outcome, so you can walk away confident – knowing your franchise business in good hands and that you’ve made good on your investment.
Why am I selling?
This is most likely the first question a potential buyer will ask you and your answer will weigh heavily in their decision-making. Some of the easily explained reasons people sell their businesses include changing personal circumstances, retirement, illness and changing priorities.
Other less attractive reasons include internal disputes, boredom, overwork and poor profitability. Although these issues can all be rectified with the right investment, they can make your business harder to sell.
Our advice is to be honest with yourself and as honest as possible with potential buyers. Prepare your franchise business for sale by settling as many outstanding issues as possible. This could mean reorganising or reinvigorating your staff, or improving sales or some of your business processes.
Is now the right time?
Many people try to sell their business when it is on the decline, but this is precisely when NOT to sell. The best time is when you are at the top your game. This will get you the best price.
However, profits aren’t everything – an astute buyer can see past profits (or lack thereof) and see potential. What is important is a well-organised and systemised business. Ideally, a year or two of preparation is recommended but often this just isn’t possible.
Any preparation you can do will enhance your franchise’s prospects. Be sure to speak to your franchisor, they may be able to provide additional information and resources to enhance your franchise’s prospects. You’ll want to give the new owner something solid to work with, and make your business and its bottom line more attractive.
What is my exit strategy?
Are you looking for an outright sale or a progressive buyout? Have you considered whether you will be prepared to stay on for a fixed period of time to assist the new owner?
Without an exit strategy you leave yourself open to a lengthy and frustrating handover and potentially risk losing the sale.
What is my franchise business worth?
When it comes down to it, your franchise is worth whatever someone is willing to pay for it. But having an understanding of the value of your business in financial terms will give you confidence to ask for a fair price.
There are many different ways to value a franchise business. Asset valuations divide a business into three parts and put a value on each: tangible assets (buildings, equipment and vehicles), stock (supplies) and intangible assets (contracts and customers).
Other valuation methods include cost of entry comparison (what it would cost to start a new business and get it to the same level) and price-earning ratio (focuses on the potential for future earnings).
Check with your franchisor to find out how much other franchise resales have sold for, keeping in mind that location and profits are key pricing factors, and then set a fair price.
What will I do after the sale?
It’s important to put some thought into your future plans before your future arrives. All going well, after the sale you will have a healthy bank account and more time on your hands. If you already have a plan in place, you won’t be tempted to make rash decisions.
If you don’t have a plan when your franchise business sells, take some time before you dip into the profits. You could have many options open to you: pursue a hobby or interest you’re passionate about, invest in another business, pay off debt or save for retirement. Think about your financial goals and speak to a financial professional to get advice on how to reach them.
Finally, in accordance with your franchise agreement, you may be required to gain the prior approval of your franchisor for the purchaser of the business. It’s important that you keep your franchisor informed about your plans at the very beginning of the process and ensure you comply with any rules that apply to the sale. Your franchisor might also be able to help you in selling your franchise.
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