At Providence Law, we regularly counsel clients selling franchise businesses. Let us help you keep this simple, by breaking down the process into two actionable steps that you can immediately implement and accomplish. I have personally bought and sold franchises and helped many others do the same. You can do this!
The two steps are:
- Review the Franchise Documents, and
- Create a Marketplace.
Let's unpack this…!
It all starts with the Franchise Documents – the FDD and the Franchise Agreement.
Everything in franchising starts and ends with the franchise documents, namely the FDD and the Franchise Agreement. The Franchise Agreement is the contract, between the two parties to a franchise relationship – the franchisor and the franchisee. The Franchise Agreement provides all the terms for the operation of your franchise, including starting and selling the franchise.
Thus, you have to start with the franchise documents so as to know the terms for selling the franchise business.
After you know the terms, you then know how to proceed. For the sake of this article, it is not important what the terms are – we will find those out later. Rather, it is important to know that generally, franchise agreements provide terms for selling the franchise and that it is important to (i) know and (ii) follow those terms.
Find Potential Buyers by Creating a Marketplace.
Once you know the terms for selling your franchise, you act! How do you get started? There are many ways to begin finding potential buyers. You may have relationships with other franchise business owners; you could potentially start there, by gauging their interest.
You could employ the services of a business broker. Some brokers have specific knowledge in selling franchise businesses; we have relationships that could be helpful. The point of a broker is to use a third-party medium to promote your business, via channels outside and beyond your own. They generally profit only if the sale occurs and thus could provide a low-risk opportunity to market your business.
Engaging the franchisor can also be helpful. Sometimes franchisors will have people in mind and sometimes franchisors, themselves, may be interested in buying your franchise.
The idea behind creating a marketplace is to generate leads, from wherever they may arise, so as to create a pool of potential buyers, which may yield one or more serious candidates.
Related Matters, such as a Nondisclosure, Conducting the Closing/Transfer, and Dissolution/Windup!
As with most things in life, there's generally more to the story. Some of the related matters include:
Nondisclosure Agreements: A nondisclosure agreement prevents the information from being disclosed to any outside, third parties. I always recommend implementing nondisclosure agreements when communicating with potential buyers.
Closing: The conveyance of the franchise business will occur through a closing. The closing is generally conducted with the assistance of an attorney and requires the involvement of the franchisor so as to facilitate the transfer of your franchise to the new owner (and to ensure compliance with the FDD and franchise agreement).
Dissolution: Eventually, you will need to wind up the affairs of the business entity (e.g. LLC) before dissolving it.
And there you have it, the two actionable steps to get started selling your franchise business. It may seem daunting, but it's not. Contact us – we can help!
Attorney Craig Morgan is the managing attorney at Providence Law, a former franchise business owner, and business, corporate, and franchise attorney. Call him at (704) 703-2910 or Email him today to get started!