Franchise Resale Opportunities
Gain an understanding how franchise resales work, explore some of the pros and cons of buying an existing franchise, and find exciting opportunities.
What happens when an existing franchisee decides to sell? Franchisees don’t actually “own” the franchised business. In fact, they own the “assets” of the business only. The Franchisor gave them the “rights” to use the name, marks, the operating manuals, the “system”, however the franchisee does not “own” these items. In effect, they rent them from the franchisor during the term of the franchise agreement.
When existing businesses sell, the price is typically based on a multiple of normalized annual earnings or cash flow. Another common term used in the financial industry is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
Typically, franchisees want to re-coup every dollar they put into the business and then some. Often this is possible assuming the business is profitable and has a track record. Two positives franchisees sometimes overlook:
- Franchised businesses that are profitable will typically bring a higher multiple of cash flow in the sales price.
- There is intangible value (because it’s a franchise) that can add to the sales price.
But on the flip side, an existing franchised business (in the eyes of the buyer who is looking to buy a stream of income) is an existing business that happens to be a franchise. Therefore, unless the business is profitable, this buyer will probably not wish to pursue it.
The franchise minded buyer (wants less risk and likes the franchise model) will like the fact that the current franchisee has done most of the hardest work in ramping up the business. The existing franchised business will be very appealing to this buyer assuming he/she has a personality that matches the business model.
So what happens if the business is not yet profitable or is just now at break-even? The franchisee will have to decide how motivated he/she is to sell those assets. Obviously, since there’s no stream of income, the price will need to attract the franchise minded buyer. Will this buyer pay you a price higher than what it would cost to put in a new franchise? Possibly, however several factors enter into the buyer’s decision:
- Is this franchise territory more desirable than an available new territory?
- How ramped up is this business? How large a database?
- How much marketing has been done to create branding in the territory?
In the event the current franchisee has a “short fuse” on when they wish to sell – price may have to be lower than turnkey cost of a new franchise in that system.
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PROCESS OF SELLING AN EXISTING FRANCHISE
Selling an existing franchised business is much like selling any other business with these differences:
- Franchised businesses have some intangible value because of the franchise itself
- Franchised businesses will often bring a higher multiple in pricing
- Successful franchised business owners have the advantage of attracting both cash flow buyers and new franchise prospects.
There are many complex steps in selling your business. Anne Barr, Franchise Opportunity Specialist, can walk you through all the steps so you can concentrate on running your business, while we concentrate on finding you the best qualified prospect. Let us minimize your stress by assisting you in locating the person with the best personality traits, skills and financial capability to take over your business.
- Exclusive Listing Agreement
- Proper Documentation
- Tax Returns
- Copies of Contracts, Leases, etc.
- Valuation and Pricing
- Market Comparables
- Intangible Values
- Completion of Professional Marketing Package
- Finding the Right Match for Your Business (business owners, downsized executives, franchise prospects)
- Assessing the Qualifications of Buyer Prospects (which ones match your Franchisor’s profile)
- Educating prospects about the franchise industry & process
- Coaching prospects through the research and due diligence process
- Purchase Agreement
- Acceptance of Purchase Agreement
- Financing Assistance for the Buyer
- Franchisor Approval
- Lease Assignments
“The decision to sell our business was bitter sweet and frankly a little scary, but Anne put all our fears to rest. Her years of experience with selling franchises and business acumen, were evident from the beginning. We had no idea what to expect during this process, but Anne was very patient and always available for questions…and yes we had lots of questions! When asked her opinion, she was very honest and she never tried to influence our decisions one way or the other.
My husband and I highly recommend Anne to anyone who is looking to sell their business. She truly made our selling experience a positive one.”
BUYING AN EXISTING FRANCHISED BUSINESS
At Franchise Opportunity Specialist, we can help you find the right franchise or existing business opportunity. We’ll assist you in mapping out your business model, focus in on the right opportunity, prevent mistakes, and navigate the process.
Give us a call at (972) 786-0017 for a free consultation or complete the following form and we’ll contact you.
Franchise Opportunity Specialist
13140 Coit Rd., Ste. 211
Dallas, TX 75240