Selling up?

When the time comes to sell your business, how should franchisees go about it? Nigel Toplis discusses the ins and outs of maximising value while limiting the pain

Selling up?

While some franchisees are keen to hand over control of their businesses to their children, the vast majority are seeking to sell them on and, in the process, make as large a profit as possible.

Unfortunately, in my experience, the decision to sell is often taken without appropriate planning. Most franchisees simply do not understand what is required when selling their business on the open market or to the highest bidder.

However, throughout the lifespan of a franchised company, these business owners should really be focusing on creating a capital asset, which they can sell for a sizeable amount of cash sometime in the future. Therefore, how does a business owner go about selling their franchise as friction free as possible?

The process

Selling even a small business is complex. It is not simply a case of sticking a few basic details on a ‘for sale board or window’ in a local newsagent. This is neither a ‘garage sale’ nor a ‘car boot sale’.

Getting the right price and orchestrating a seamless takeover of ownership requires a great deal of care, attention and effort. The aim is to make certain that the sale is ‘friction free’.  But, to achieve this, you must follow certain protocols.

All exits require a plan

Step one is to draw up a set of accounts – preferably the most recent three years. All buyers will offer you a price based on your recent profits, so detailed accounts are critical.

There is a calculation we call Sustainable Transferrable Operating Profit (STOP). This, essentially, is a calculation of sustainable operating profits, minus the following: owners’ drawings; lifestyle benefits; tax; interest and extraordinary items.

Your buyer will offer you a calculation of STOP, which is based on their assessment of your business. You, as the seller, will need to contact an accountant to determine your own STOP figure.

Keep your foot on the accelerator

When franchisees decide to sell, they sometimes subconsciously take their foot off the pedal. But please don’t do this.

It’s actually the worst thing any business owner can do. You need to keep the business functioning on maximum power. A sale can take anything from six to 18 months, from start to finish, and the last thing you want is for profits to take a nosedive.

Once you’ve decided to sell your business, find a good broker, and also make use of the franchisor’s resources and experience. There are plenty of agents out there prepared to take your money. Personally, I would only use a BFA (British Franchise Association) accredited broker to prepare the sale. 

And I would make full use of your franchisor’s resources to prepare an attractive and comprehensive sales prospectus. As a franchisor myself, I expect my franchisees to sell up at some stage. Therefore, good franchisors must be ready to assist their business partners to make a sale.

Work with your franchisor

Franchisors are geared up for helping franchisees prepare for exit. Most likely, they have been through this process many times before. It’s worth remembering that the franchisor has the right to veto any purchase, if they don’t think the buyer is suitable.

Most franchise agreements include a section relating to ‘exit fees’, which is essentially a charge for associated costs, such as training, marketing and stationery etc.

As soon as the franchisee decides to sell up, they should inform the franchisor as early as possible. This will help to ensure the process runs smoothly and that there are no unexpected costs.

Franchisors will help franchisees to set a realistic price. But, remember, buyers are only usually interested in current performance, not business potential. However, your selling price does need to consider both agent and franchisor fees.

The final act

Once you have a plan, and have drawn up a prospectus and arrived at a preferred sale price, it’s time to involve the lawyers.  My recommendation is to use a BFA approved solicitor. They understand the nuances of selling a franchise, which will help the process to run smoothly. 

Selling a franchise, or any business, is never easy. However, thanks to careful planning and collaboration with the franchisor, this should help to make the process as pain-free as possible.

Nigel Toplis
Nigel Toplis