3 minute read
Selling My Franchise or Buying Into an Existing Franchise?
by Harold Kestenbaum
If you have made the decision that now is the time to exit a franchise, you need to accomplish three critical things before placing your business on the market. If you are interested in buying an existing franchise, it’s also important to understand these three factors because it can affect how you move forward.
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1. Discuss Future Plans
First, you should discuss with your franchisor what your plans are. All franchise relationships eventually come to an end. You are probably not the first and won’t be the last franchisee to exit the system. You have used the franchise system, brand, and people to build your business. Don’t be afraid to use them to exit. They have a critical interest in a successful transition. Use them to help you close the deal. If you have a specific reason why you think telling the franchisor will compromise your exit, then you should discuss that with your franchise attorney. If you don’t have an attorney that you are comfortable working with, please give us a call for a free initial consultation at 215-544-2972.
2. Gather Documentation
Second, you need to gather documentation and clean up any inconsistencies, errors or omissions in your paperwork. The list is extensive, and you can never have too much documentation. Buyers will take lack of documentation or documentation they have to fight to get as a sign of trouble and it will break down the trust between you. Not only will it potentially affect your value, but it will also cause unnecessary delays.
In a small business transaction, the trust between the buyer and seller is critical. Without trust, the deal will not happen. The way you can build trust is by having all the documents readily available for any buyer who is serious about making an offer. You need to tell a story to the buyer, and that story has to be validated by documentation.
3. Understand Financing Options
Finally, you should see what, if any, financing will be available for a buyer. This should be done before you even list your business for sale. Talk to your business broker, attorney, accountant or franchisor to get some recommendations on financing sources to pre-qualify your business. Not only will this make it easier to sell the business, but it will also be a great reality check on your price. If the price can’t support financing, then maybe you shouldn’t sell until the business grows into the price you want.
Buyers of small businesses always have to make a leap of faith, similar to the leap you made when you got into the business. You need to convince the buyer why this transaction makes sense. If you are really ready to sell, have prepared a well-organized and thorough package and have pre-qualified your business for financing, you will have a better chance of selling your business on your own terms.
About Harold Kestenbaum:
Harold L. Kestenbaum joined Spadea Lignana in 2019, having unrivaled experience in the franchise industry and in franchise law. He founded and served as President and Chairman of the Board of FranchiseIt Corporation. Harold also authored the first book dedicated to the entrepreneur who wants to franchise called “So You Want to Franchise Your Business.” Contact Harold at hkestenbaum@spadealaw.com or call at 215.774.3365 x136.
