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The franchise sale

Written by: Diarmuid Kieran

Article Overview: Example of the steps involved in the sale of the franchise.

The franchise sale

Sales of franchises should be made by a set procedure of which an example is set out below. Individual franchisors will have their own specific procedures.

1. Receipt of inquiry from prospective franchisee.

2. Initial telephone response from franchisor establishing personal contact. No information disclosed.

3. Dispatch of franchise pack including franchise application form.

4. Receipt of completed form followed by assessment of information provided.

5.
(a) If reply indicates that the applicant is worth investigating further, personal contact is made again to arrange interview and visits to the franchisor's existing outlets.
(b) If reply indicates that the applicant is unsuitable, he or she is advised that the process will not be taken further.

6. Prospective franchisee is interviewed by the franchisor's assessment panel which may be comprised of the franchise manager, a property specialist, the sales manager, the technical manager and/or other relevant divisional managers, depending on the type of franchise operation.

7. Establishment of franchisee's financing requirements.

8. Signing of confidentiality agreement and payment of deposit by franchisee.

9. Disclosure by franchisor of confidential information to enable franchisee to prepare a business plan.

10. Introduction of franchisee to funding sources.

11. Evaluation of available sites/properties in proposed territory.

12. When sufficient funding is raised by the franchisee, the franchise purchase agreement is signed and the balance of the initial franchise fee is paid by the franchisee.

13. If the franchise business requires a site, it is acquired and the lease is agreed. The franchisee works with the franchisor on converting the property to the style of the franchise.

14. Franchisee participates in training programme.

15. If the franchisee passes the training and is judged suitable by the franchisor, the franchise agreement becomes effective on completion of refurbishment of the franchise unit.

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Re: Franchising Brokers vs Franchising Consultants - [quote:hhad2ohp]To correct some mis-information. Not using a broker/consultant will not save you any money. The FTC is quite explicit about that. The franchise fee is the same whether you use a broker, or if you go directly to the franchisor.[/quote:hhad2ohp] Mayor Dan, please provide your source for this information. It is common to negotiate things such as the territory and even the franchise fee at the time of sale. Many brokers/consultants want a minimum of $10,000 when they sell or significanty assist in the sale of a franchise. This can be a significant "adder" to the cost of the franchise.
Re: Kevin's Case Study #6 - Marketing an information resource? - Hello Jude. Thanks for your reply. I want to get away from the lead generation because this business became way too competitive and we just don't have what it takes to stay in this arena. Besides, there is no real information resource for potential franchise buyers and I think the industry needs someone like us, kinda unbiased. I have been working on a marketing plan. We are now offering a bunch of high value information to our clients, helping them on different aspects of the franchise sale process. We still generate leads (and we will for a while I would assume) but this is not our core business.
Non-medical homecare franchise business model - I talk to people all the time who ask whether a franchise will work in a particular market. The answer, as I learned in law school, is "depends." It depends on whether there are many other providers of that service as independents or franchisees in the market you are looking at. It depends on the barriers to entry for others to start a similar business in the market or for a franchiser to sell a franchise offering similar services in the market; it may also depend on how the market is split into "micro-markets" of sizes that one franchise may serve. If, for instance, an established metro area with all kinds of services and shops is naturally expanding for some reason, then new areas will open up and create new opportunities for new franchises. One other thing to consider is the role law and regulations may play. I live in Virginia, a franchise registration state. Many franchisers avoid Virginia because of that fact. There may be franchise systems with hundreds of franchises and none in Virginia. If you live in a registration state, contact a non-registered franchise and see if they will get registered to possibly make a sale to you.
Be sure of your investment - I don't want to question you here but are you sure you want to invest every cent of your net worth into 'starting' a business from scratch? Even franchised businesses go bust and in fact the data the franchisors are going to show you are a bit skewed because they aren't going to include those franchises that went bust with their original owner losing everything and someone in the right place and right time buys out at pennies on the dollar. Trust me when I tell you, your franchisor will even facilitate these buyouts so as the income producing franchise continues and their stats don't take the hit. It's only the original franchisee that loses so much. Now I don't know what type of franchise you are looking at or even what area, but with the kind of liquidity you already have, you might want to get with a business broker and look at profitable businesses for sale. Sure you pay some goodwill but the risk is so much lower, there's usually owner financing on a portion if not all, and you're not having to invest so much cash during the first year or two just to keep the doors open. Since you obviously already have some idea of the investment price and projected return, do yourself a favor and browse some of the websites for businesses for sale. Compare all the pros and cons of both avenues.
How to Qualify? - I don't want to question you here but are you sure you want to invest every cent of your net worth into 'starting' a business from scratch? Even franchised businesses go bust and in fact the data the franchisers are going to show you are a bit skewed because they aren't going to include those franchises that went bust with their original owner losing everything and someone in the right place and right time buys out at pennies on the dollar. Trust me when I tell you, your franchiser will even facilitate these buyouts so as the income producing franchise continues and their stats don't take the hit. It's only the original franchisee that loses so much. Now I don't know what type of franchise you are looking at or even what area, but with the kind of liquidity you already have, you might want to get with a business broker and look at profitable businesses for sale. Sure you pay some goodwill but the risk is so much lower, there's usually owner financing on a portion if not all, and you're not having to invest so much cash during the first year or two just to keep the doors open. Since you obviously already have some idea of the investment price and projected return, do yourself a favor and browse some of the websites for businesses for sale. Compare all the pros and cons of both avenues. Just a suggestion.


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