franchisee’s thinking of selling, a critical first step is to engage your franchisor’

By Gillian Morris, UK Head of Franchising, HSBC

By any measurement, the last few years have been challenging; few businesses have remained untouched Over the last three years, we have navigated our way through the COVID 19 pandemic, recr uitment challenges and inflationar y cost pressures All businesses in some ways have had to g rapple with one of these, if not all

Having come through these challenges, an increasing number of business owners have decided that now is the right time to refocus, step back and look for new challenges (even if it’s perfecting the golf swing)

Resales are increasingly the most impor tant topic for franchisors and franchisees Selling a non-franchised business can be relatively straightforward – if the buyer and seller ag ree ter ms, then they can hand the process over to their lawyers In franchising, it is not as simple as that, as there is the inevitable third par ty involved – the franchisor

For franchisees thinking of selling, a critical f irst step is to engage their franchisor, as each brand will have their own requirements and restrictions The franchisor will be interested and, in many circumstances will need to approve potential acquirers, they will want to be satisf ied that future franchisees meet their requirements and will suppor t the future g rowth of their brand

Often, franchisors will already have a potential list of acquirers including existing franchisees in the network and those seeking to buy an established business Existing franchisees are often the best pool of potential buyers as they will have already been vetted by the franchisor and most likely to be approved candidates. Existing management and employees are another pool of potential buyers Whilst Management Buyouts are now a familiar ter m, an emerging sale route is to

Employee Share Ownership Tr usts

Often a brand will be seeking to broaden the skill base or demog raphics of their franchisee base and will work with selected franchise consultants to source potential new buyers who they believe will develop and g row their brand.

Mature brands will be able to provide high level guidance on historic business valuations. It’s unlikely that your franchisor will provide more detailed advice on the value of your business, as whilst they will want to ensure the outgoing franchisee achieves the best possible price, they will also be interested in the success of the incoming franchisee and ensuring that they have a long-ter m sustainable relationship

Therefore, it’s impor tant to remember that these are for guidance as the nature of the business will drive the valuation and often are bespoke considerations to that franchisee.

Factors driving the optimum valuation will include the value of goodwill within your business, whether your income stream is contracted, its location and attractiveness to other buyers your franchise business may be more valuable if you have competing bids.

Additionally, a buyer may be willing to pay more if the seller is flexible around payment ter ms, including defer red

A buyer may be willing to pay more if the seller is flexible around payment terms, including deferred payment terms which may or may not be conditional on the business meeting future performance targets.

About the author

Gillian Morris has over 25 years’ experience in the financial services sector and was appointed as UK Head of Franchising, HSBC UK in Januar y 2022 Morris joined HSBC in 2017, as par t of HSBC’s Commercial team in Nor thern Ireland and in Januar y 2019 became Head of Corporate Banking & Agriculture, Nor thern Ireland for HSBC UK

Prior to joining HSBC, she worked for Lloyds Banking Group, based in London, having joined as a graduate trainee Her career to date has encompassed relationship banking, structured asset finance as well as strategy development and business per formance

She holds a Law degree from Queen’s University, Belfast and a BSc(Hons) in Banking and Finance from UMIST and is an Associate of the Char tered Institute of Bankers (ACIB) franchiseunit@hsbc.com www.business.hsbc.uk/hsbc-franchising