In the perfect scenario, your franchise will have given you a great return on your investment while youÍve been working in it, and you are able to sell it on for a profit. But what happens if a sale is not forthcoming?
Your franchise business may be hard to sell for a wide range of reasons, some of these personal, some outside your control. For instance you may need to make a quick sale because your health is poor, there might be a need to relocate but you do not have the funds, you may want to move before your rent increases under a new lease term or you may be nearing retirement.
Of course it may be that your business is unprofitable, or that your franchisor is causing problems or that the entire system is under-performing. This may arise due to events outside your control but look carefully at whether the cause arises from over promises made to you by the franchisor or its recruitment officer when you joined, or from the lessor of your premises.
Misrepresentations that induce you to enter what turns out to be a bad business and conduct during the franchise which is below the standards required by the courts can mean you can seek compensation or negotiate a better exit deal with your franchisor. Common issues are overstated turnover or customer numbers, lack of support and training, the franchisor over-charging for supplies a franchisee must buy and franchisor failure to market test new products and services. If you feel any of the above scenarios apply, be sure to seek professional advice before making allegations.
The franchisorÍs role
The sales process will depend on your reasons for selling and how much time you can take. This means early planning is essential; if you end up being a desperate seller, the price you achieve will be low.
On some occasions it is hard to sell due to lack of co-operation or even sabotage from the franchisor. The Franchising Code of Conduct, clause 20 sets out that the franchisor can refuse to consent to your purchaser. However it allows for you to demand answers in writing as to why, and to challenge those answers. If the franchisor fails to respond to your written request within 42 days, the Code allows for your sale to take place.
If you have done all you can to sell your business, it may be that the franchisor will step up to be a buyer of last resort. Remember the franchisor may still charge fees for this, even though you are selling back to the system.
The sales process
During this process take time to see if you need to use a business broker or lawyer to assist you and your accountant and whether you need your bankÍs approval for the release of bank security. You must also make sure all guarantees you have signed can be discharged now or on agreed terms.
When approaching the franchisor be aware you can ask for either a novation or assignment of the franchise under clause 20(1) of the Code. The legal consequences can vary significantly.
To be sale ready, early preparation is essential as there are a multitude of things that can hold up the process. Your franchise agreement will outline what information the franchisor requires, what rights the franchisor has to buy the business as a first right of refusal and any fees you pay. If you know that the franchisor is buying back franchises then get in early: this will often clear the way to be able to sell to the franchisor or to sell to a purchaser with the first right of refusal waived to allow a quicker sale. Read clause 20 of the Code as it sets out the rights of the franchisor to refuse to accept your sale.
Be prepared
Unforeseen circumstances can throw the best laid plans into disorder, but there are ways to make the most of a less-than-perfect situation. Start with an exit plan, read the sales clauses in your franchise agreement, get franchisor support before you sell, have financials ready to show a buyer, secure the support of key staff the purchaser will need and sell at the right time if this is a seasonal business.
While you are a franchisee you need to set a business plan, meet performance criteria and KPIs and although these may seem onerous at the time they can maintain profitability and avoid a forced sale or the appointment of an administrator. A distressed business sale means losses to you, harmed credit rating and a call on personal guarantees from the franchisor, lessor, banks and suppliers.
Understand and implement what makes your business viable and maintain that to maximise your sale price when you eventually decide to put it on the market.