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Selling Your Franchise: What Are Your Rights?

Written by: Sebastien Page

Article Overview: Would you like to sell your franchise? Easy enough in theory, but not necessarily so easy in practice – the terms and conditions for selling your franchise are outlined in the Franchise Agreement, and Franchise Agreements are as a rule drafted with the interests of the franchisor in mind.

Selling Your Franchise: What Are Your Rights?

Would you like to sell your franchise? Easy enough in theory, but not necessarily so easy in practice – the terms and conditions for selling your franchise are outlined in the Franchise Agreement, and Franchise Agreements are as a rule drafted with the interests of the franchisor in mind. Hence, you may very well find buy-back and right of first refusal clauses in the Franchise Agreement, which limit your rights regarding selling your franchise business.

Buy-back and first refusal clauses give the franchisor the right to (1) buy back your existing business from you before you can accept offers from other buyers and (2) first refuse to buy back your business before you entertain outside offers. The purpose of these clauses is to give franchisors control over who enters their franchise system: they have the ability to buy your business at a low cost so they can then sell to another franchisee for a substantial profit.

In the case of buy-back arrangements, a franchisor typically will send an appraiser to valuate your franchise, which the franchisee may or may not have to pay for – luckily, most franchisors are quick to decide whether or not they want to buy back your business, which equals less cost to you for the appraisal. You may not get the best rate in a franchisor buy-back arrangement, as the franchisor is ultimately out to make a profit that is by its nature at the franchisee’s expense.

Regarding first refusal rights: generally, the franchisor matches the offer of an outside buyer. Should the buyer’s offer include non-cash payment (i.e. real estate), the franchisor may send an appraiser to valuate the worth of the property as well as other non-cash assets.

Related Articles
  Reselling Your Franchise
  Franchise Agreement Key Provisions
  More on the franchise agreement
  Be in Business for yourself, but not by yourself
  Question Your Franchise Decision Making

Article Tags: cash assets, clauses, first refusal, franchise agreement, franchise agreements, franchise business, franchise system, franchisee, franchisor, real estate, substantial profit



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Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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