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Franchise Resale – A Planned Exit Strategy

Anyone who invests in a franchise, just as with any other long-term investments such as real estate or stock, should always have an “exit strategy” in mind. For instance, when you buy a stock, you look for it to reach a certain price to sell it. When buying a home, the investor should count on living there for a certain number of years. The same goes for a franchise – how long do you want to own the franchise? Which leads to other questions:

      • When will you break even on your investment?

      • What are your projected profit expectations and how long will it take you to reach certain financial goals?

Selling your franchise will most likely not be a unilateral decision because the franchisor will probably have certain rights regarding when and how the business can be sold or transferred. Item #17 in the UFOC details these stipulations, such as the exact length of the Franchise Agreement contract – five years, ten years, etc. It also outlines the franchisor’s right to renew the contract, re-buy the franchise unit from the franchisee and/or rights to re-assign the franchise to another individual. Many franchisors retain the “right of first refusal” meaning an external party’s bid can be matched by the franchisor, who gets first preference over buyers. This can create roadblocks to the sale because prospective buyers will not want to invest time and money evaluating your business unless there is a high probability of completing the deal. So the first step in planning to resell your franchise investment is to clearly understand what the franchisor’s rights and intentions are down the road, and how these affect your resale options. A franchisor who has no interest in buying back your franchise can still exert control over the sale, and demand that any prospective buyers first meet all franchisee qualification criteria. Keep in mind, though, that the franchisor may be your best choice and resource for selling the franchise. Franchisors are often eager to buy back an established business for a fair purchase price because it is easier to sell a proven commodity. And many have a pipeline of qualified franchisees looking to buy existing units. As the time approaches for you to exit your franchise business, there are key steps to take. Think like a homeowner getting ready to sell and house. First, get your business appraised, so you know what it is worth. Then, make sure everything is neat and orderly. Prospective buyers will be visiting to inspect the premise and see how well it is run. And just like a home seller has a deed, utility and repair bills available, have all the pertinent documentation ready for examination – profit and loss statements, gross receipts, past and present invoices, supplier information, payroll information etc.

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