Many people dream of owning a franchise, but once they actually make the dream come true and begin operating their franchise, they may decide to sell it. There could be any number of reasons for this. Maybe they've found that running a business requires more work than they initially thought it did, maybe the rewards are not as great as they thought they would be, or maybe they've decided to relocate and start fresh. Whatever the reason, you can resell your franchise, but there are some steps that need to be taken. In fact, many franchisors recommend an exit strategy from the first day of business, just in case you make the decision to sell your franchise.
Things to Take into Account When You Resell Your franchise
As always, there is the franchise agreement. This is the agreement you signed when you purchased the franchise. What does the franchise agreement state about selling your franchise? Most franchises do allow for resale, and some will likely even help you find buyers for your franchise.
There are other factors that come into play if you decide to sell your franchise. The timing of the sale is important. What is the economic climate like? You are more likely to be able to resell the franchise when economic times are good. The financial stability of your business is a factor as well. If your business is doing good regardless of the economic climate, you will probably not have any trouble selling it. Before you take the step to sell, you will need to gather important data such as your current, recent, and projected profits and cash flow. Prospective buyers will want to take a look at this.
Franchise businesses with a sustainable track record of profits are valued at a multiple of earnings, with the profits adjusted for one off items or unusual income. Smaller companies are valued at a lower multiple than larger business. Cash generating businesses can be valued the same way but based on the business cash flow. An asset valuation might be appropriate for stable businesses that have plenty of solid assets on hand. A franchisor can typically help with determining the sale price by looking at the sale of other franchises in the same area as in the past.
Selling your franchise rather than simply letting it go back to the franchisor is a benefit for both the franchisor and the franchisee. The franchise goes straight from one owner to another, without the franchisor having to be involved in the sale. Of course, the new owner will have to sign the same franchise agreement the original franchisee signed and will be held to the same requirements the original owner had. The original owner will also have to sign a document that settles any outstanding debt they may have with the franchisor.
Nobody buys a franchise with the intention of selling it. When circumstances prevent a franchisee from continuing the operation of their franchise, however, reselling the franchise is almost always an option. As we mentioned above, selling the franchise is helpful for all parties involved, which is why almost all franchisors allow you to sell a franchise with only minimal stipulations. This doesn't mean you can sell to anyone and the franchisor has no say. In most cases, the franchisor will have some say in the transfer of the franchise property. No need to worry, though. Most franchisors would rather not have to deal with all the details of reselling a franchise. A smooth transaction from one owner to another ensures the franchise can continue to operate and show a profit while ownership is being transferred.
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