For anyone keen to exit a franchised business, there are a number of factors which need to be examined first. You must undertake a thorough, honest assessment of your business, as well as the market place you are planning to vacate. Don’t leave any stone unturned in your search for answers. A proper, detailed analysis of many different factors, regarding the business, will be required.
When operating a franchise, you should always keep in mind an exit plan. As with any business, they all have a lifecycle and it’s always best to sell when trading is at its peak. The following tips apply to both franchisors and franchisees, regardless of how long they have owned their businesses. To assess whether now will be the perfect time to sell, please read on.
1) Is your business dependent on a significant number of customers? If so, ensure appropriate contracts with customers are secure, for when the incoming buyer takes hold of the reins. These customer contracts are a key asset of the business, and sales will be severely hampered if relationships are not cemented properly.
2) Check ownership of all key assets. You can only sell what you own. Make certain all key assets are appropriately owned or licensed to the business. This will enable an incoming buyer to operate the business without any issues over third party rights. We have often encountered a situation where the brand isn’t actually owned by the franchise, but rather another individual within the network. When completing a sale, you must avoid being held to ransom by anyone who could exploit the timing of the deal for their own financial advantage.
3) Get the price right. Instruct specialist franchise accountants to value your business. And a word of warning to all sellers: Always use a British Franchise Association (BFA) affiliated agency. This will help you to avoid companies that may advise you to sell your business cheaply and quickly, in the knowledge that they will still receive their lucrative consultancy fee.
4) Keep your staff on board. Your staff members are integral to the business. They should be regarded as a key asset for the incoming buyer. And keep senior staff involved at all times. This will help to incentivise them to ensure the continued success of the business for the incoming franchisee or franchisor.
5) Maintain confidentiality. Selling your business is your business – and no one else’s. Insist on having non-disclosure agreements when holding discussions with potential buyers. Negotiations can sometimes break down and may involve the disclosure of sensitive information. And just because you may know the people you are entering into discussions with, it doesn’t mean you can afford to relax this much-needed requirement.
6) Assemble the right team to support you. It is vital you receive the best possible advice. This will help you to achieve the best terms for your exit. Start your planning early by appointing the best professional advisors. You will require a corporate finance lawyer and may also need a specialist corporate finance accountant.
By engaging with advisors from an early stage, this will add value to the process. This also gives your appointed advisors plenty of time to understand your business – and what makes it tick. They will assess your aspirations and help to iron out any issues that may require attention.
Before the business is marketed for sale, your advisors will help to make it as attractive as possible to potential buyers. Your accountancy advisors will assist with tax planning ahead of the exit. Buyers, along with banks, private equity and other funding acquisitions, will always be sensitive to potential issues that may emerge during the ‘due diligence’ process. Buyers need to identify any potential problems as early as possible.
It is extremely important when selling a franchised business to thoroughly investigate your responsibilities towards fees, obligations, as well as prior purchase options that may be due or owed to your franchisor. Increased regulatory and compliance burdens on all companies mean they need to be properly managed to avoid the dreaded ‘price chip’. Unexpected liabilities could ultimately prejudice a seller’s valuation.
When assembling your advisory team, several factors need to be considered. These include: Experience and technical ability; Sector knowledge (particularly experience of franchise arrangements); Pricing.
7) Maintain a uniformed approach. For franchisors, it is vital that the resale process is managed in a streamlined way. By having all your resale documentation readily available, it will help to protect the interests of both your business, and those within your network of franchisees. It is important to make the process as smooth as possible for everyone.
From an ethical perspective, it also serves to demonstrate that you are protecting the interests of both existing franchisees and those who may join the network in the future. By adopting a responsible, constructive and detailed approach, this will ensure the sale is managed properly from start to finish.
Ultimately, exiting a franchise business is a major decision that requires a strategic and considered approach. This will hopefully achieve maximum value, as well as the smooth transition of the business to new owners.
Should you require specialist legal advice and guidance in relation to this article, please contact Fiona Boswell, who is a franchise partner at Knights PLC (email: [email protected].) This article is provided for information purposes only and does not constitute legal advice.
