Can You Sell a Franchise?
Buying a franchise business may be tempting because of the brand name and proven systems. But when you decide it is time to get out, will you be able to sell your franchise?
I canvassed a number of franchise experts and professionals who sell businesses for a living, and they were divided on whether a franchise was easier to sell than a stand-alone, independent business of a similar nature. Here's what they had to say:
Selling a Franchise: The Benefits
1. Customers are loyal to the business, not you
'When you pick up a Big Mac, you're probably not choosing McDonald's because you're loyal to the owner of that franchise,' says Joel Libava, a specialist in helping people choose franchise businesses. The reason most smaller businesses are hard to sell is that they are too reliant on the owner as the rainmaker. With a franchise business, at least some of the reason customers find and return to the business is the brand the franchisor has built.
2. Buyers get an operations manual
Another reason independent small businesses are typically harder to sell is that their operations are inside the head of the founder. 'One of the benefits of selling a franchise is you have a system to follow, initial training and ongoing support,' says Larry Lane, owner of VR Business Brokers of McKinney, Texas.
3. Buyers understand what you're selling
Unlike an independent business where the magic can be difficult to describe in a short ad or online posting, people know what you're offering when you say you're selling a Subway sandwich shop in Memphis.
Selling a Franchise: The Challenges
1. Transfer fees and restrictions
Franchisors like to control and vet who they accept as franchisees, which means there is often an approval process to undergo and transfer fees to pay when a franchise unit changes hands. Mark Andresky, a certified business intermediary and exit planner explains: 'Many franchisors require hefty franchise transfer fees (often many thousands of dollars) as well as fees for mandatory training of new owners. Many of these fees and requirements are buried in lengthy franchise agreements and are often a surprise to the selling franchisee.'
2. Smaller pool of buyers
Some people just don't want to own a franchise because of the rules, restrictions and fees that put creative entrepreneurs in a box. 'I have to agree with the ‘harder to sell' folks,' says Barbara Taylor, a partner in Synergy Business Services in Fayetteville, Arkansas. 'Franchises tend to evoke an either/or response; you either love 'em or hate 'em. In my experience, there are fewer buyers who are looking to buy an existing franchise.'
Jim Cumbee, principal at the Tennessee Valley Group, adds: 'A large part of selling a business is finding the right emotional connection with a prospective buyer, and I think it's easier to find that emotional connection when it's a non-franchise business.'
3. Competing with your franchisor to find a buyer
When you try to sell a franchise, you may be competing with one very large, well-financed competitor: your franchisor. 'While many franchisors tell their franchisees that they will assist in finding a buyer when the franchisee chooses to sell, my experience is that most do not offer much, if any, assistance,' says Andresky. 'In fact, some franchisors are so focused on selling new franchise units in a market that they, in effect, compete with existing franchisees who desire to sell. I have also seen downward price pressure on existing franchises when multiple units are on sale in a region.'
If you're going to buy a franchise, make sure you understand the rules for selling it down the road.
JOHN WARRILLOW | Columnist | Sellability
John Warrillow’s new book, The Automatic Customer: Creating a Subscription Business In Any Industry will be released on February 5, 2015. John is also the author of Built to Sell: Creating a Business That Can Thrive Without You and the founder of The Sellability Score, a company dedicated to helping business owners improve the value of their company.