25 Jul Franchise Resales (Part 2 of 2)
This article is a continuation from Tuesday’s posting encouraging brokers to take advantage of the opportunity available in the resale of existing franchises.
Keep in mind that new franchises are opening every day. In fact, the real growth in small business is from franchising. If you’re not going after franchise resales (which often lead to the sale of new ones), you are missing out on a lot of business.
Let’s take a look at the resale end of it for now. Franchised businesses are not very different from non-franchised ones. The big difference in selling them is that you will need the okay of the franchisor at some point. The franchisor can’t unreasonably withhold consent; however, many franchise agreements provide the franchisor the right to purchase the unit under the same terms, etc. Most won’t.
There are some horror stories about what a few franchisors have done — and may still do. Some will try to sell your buyer a new unit; others may demand transfer fees; and, some will flat turn down the buyer. Most are quite reasonable. The biggest issue is that many franchisors require serious updating of the unit and they don’t care who pays for it – try working that out between the buyer and the seller.
The good news is that franchisees usually have very good records, the lease is much easier to transfer and may even be held by the franchisor. These are all things that should be checked before taking the business to market.
Listing franchises is no different than listing a regular business. The key is to contact the franchisor and see what you are up against in selling it. You might as well find out what you are up against going in. Most franchisors really don’t want to get involved in handling a resale – they just want to sell new units. The resale may even be getting rid of a difficult franchisee; there is very little income in a resale – just the transfer fee.
If you are going to be successful in business brokerage, you have to get involved in the resale of franchises. It might even pay to find a former employee or franchisee to head up a separate part of your business. Franchising is here to stay, and if you are “here to stay” you have to get serious about the sale of existing franchisees. There is a growing number of firms handling this part of business brokerage; and yes, they are franchised.
There are several publications that are musts if you are going to handle this segment of business brokerage:
Franchise Times – a monthly publication that will keep you up to date on what is happening in the world of franchising. www.franchisetimes.com; firstname.lastname@example.org
Nation’s Restaurant News – published semi-monthly and, although it is devoted to the food service business, there is a lot of information on the franchise segment. There are a lot of facts and figures and other information you have to have. Not only is it necessary, but it is a lot of fun to read. This is also a must! www.nrn.com or call 800-944-4676 for a subscription.
Franchise Opportunities Guide – published by the International Franchise Association. This is the third must. It provides essential information on over 1,000 franchises. It contains investment required, the number of units, contact information and what the franchise does. Available on IFA’s web site.
The 2013 Business Reference Guide — This is obviously self-serving, but it contains helpful pricing information, etc., on well over 100 different franchises. It is also available in an online version. For more information go to www. businessreferenceguide.com.
Note to Readers: If you have made any sale of franchises in the past 12 months and have not completed our very brief sale form, please do so now. Just send the below information for each franchise resale (it will take only a minute or two for each) to email@example.com. We are trying to establish a list of rules of thumb for as many franchises as possible. If you want to see a list of what we have currently available, please email me at firstname.lastname@example.org.
Information Requested for Each Franchise Resale:
Name of Franchise:
Type of Business:
Location (City & State):
Gross Annual Sales: $
Selling Price (Exclusive of Real Estate): $
Down Payment: $
Is Inventory Included?
Name of Firm:
Comments or Additional Information: