A Step-by-Step Guide on How to Sell Your Franchise

Introduction

If you’re a franchise owner—or planning to become one—understanding how to sell your business quickly and for top dollar is essential. This guide walks you through the process of selling your franchise efficiently while maximizing its value. Whether you’re thinking of selling now or in the future, these tips will help you plan ahead for a successful exit.

Franchise Business vs. Independent Business

Selling a franchise can be simpler and more lucrative than selling an independent business. Buyers typically have more confidence in the reliable data provided by the franchise, such as top-line revenue, which speeds up the due diligence process. Franchise systems also tend to fetch higher multiples during sale. For instance, a Dunkin’ franchise might sell for six to seven times its EBITDA, thanks to brand strength.

Benefits of Selling a Franchise:

• Faster Sales Process: The structured systems and recognizable brand give buyers more confidence, accelerating the sale.
• Higher Valuation: Top franchises often sell for higher multiples than similar independent businesses.
• Brand Familiarity: Established brands like Dunkin’ Donuts or licensed Starbucks models attract more buyers, speeding up the transaction.

However, some industries, such as property management, might find lower demand for franchised businesses. Strategic investors may prefer to integrate a business into their own systems, potentially lowering the value of a franchised business. In these cases, it’s crucial to understand how your franchise agreement affects your ability to sell without the franchise brand attached.

Matching the Lease with the Franchise Agreement

One of the trickiest aspects of selling a franchise is ensuring alignment between the remaining term of your lease and your franchise agreement. Buyers will likely offer more money for a franchise if there is a longer time left on both the lease and the franchise agreement. Shorter terms could lead to a lower sale price, especially if the franchisor has introduced more restrictive terms in newer agreements.

Key Considerations:

• Lease Duration: A longer lease can increase your franchise’s value.
• Franchise Agreement Terms: If your agreement has more favorable terms than newer ones, your franchise may sell for more.
• Franchisor Buyback Option: Be cautious of any franchisor’s right to buy back the franchise upon resale, as it could reduce your selling price.

Who to Approach When Selling Your Franchise

When you’re ready to sell your franchise, the first step is to approach your franchisor. Being transparent about your reasons for selling can help maintain a good relationship and possibly speed up the process. Franchisors may know of franchisees within the network who are looking to expand, which could lead to a quicker sale.

Franchisor

• First Contact Reach out to your franchisor to explore repurchase options or leads within the franchise network.
• Transparency Be open about your reasons for selling, whether it’s for a new venture or relocating.

Franchisees

• Adjacent Franchisees The next best option is approaching franchisees in neighboring areas who may be interested in expanding. Deals within the franchise system can close within 30 to 90 days.

Engaging a Business Broker

If you’re unable to sell directly to another franchisee or the franchisor, consider working with a business broker. However, selling on the open market usually takes longer—up to six months or more—and may attract buyers who are just fishing for information. While brokers can advertise widely, your best chance of selling fast remains within the franchise network.

Using a Business Broker:

• Timeframe: Sales through brokers typically take 6+ months.
• Marketing Reach: Brokers advertise on multiple platforms and use mailing lists, but it can draw out the process.
• Higher Complexity: Open market sales often involve a longer due diligence process compared to sales within the franchise system.

Conclusion

Selling your franchise quickly and for top dollar is most likely when you work with insiders: the franchisor or nearby franchisees. These deals can close in as little as 30 to 90 days, while selling on the open market typically takes longer. Strategic investors such as private equity firms may also be interested if your franchise has the potential for further expansion. By carefully aligning your lease, franchise agreement, and maintaining strong relationships, you can maximize the value of your franchise at the time of sale.