Advice for Buyers and Sellers of Franchised Businesses

Share on facebook
Share on google
Share on twitter
Share on linkedin

Franchises are quite common these days. Everything from pizza places to hotels are offered via franchises.  When it comes time to sell or purchase an existing franchised business, let Martin at Five Star Business Brokers of South Florida show you the way!

For franchisee owners, the main issue to confront when selling their franchised business is satisfying the franchisor as a part of the overall deal. In the franchise agreement between the franchisor and the existing franchisee, the franchisor often is given the power to essentially have veto power over the buyer (and sometimes with the actual purchase agreement). The franchisor wants to control who is a member of their franchise. They will want to know if the prospective purchaser has the experience, background, temperament, or financial resources to become a solid ‘team member’ within their franchised network. This will necessitate jumping through some hoops before the deal is allowed to consummate. The prospective buyer may have to meet with a member of the franchisor’s team, go through phone interview process, show their financial history, and agree in writing to all of the terms and conditions of the franchise documents. Moreover, the franchisee will have to usually complete a training process at the franchisor’s place of venue and at the prospective purchaser’s expense. Obviously, all of these terms may dissuade some prospective purchasers from buying a franchise. But if the buyer is truly committed to buying the business (and by definition, becoming part of the franchise), and if they are qualified anyway, then these issues should not be too burdensome.

Conversely, for buyers of an existing franchisee, the main issue to confront is whether they will want to sacrifice some freedom of running their business as how they see fit. In exchange, they will receive the benefit of being part of the franchise. An experienced restaurant operator, for example, may not want to purchase a franchised restaurant because they will not want to be told what menu offerings they can serve to their own customers. Of course, they may also object to paying the royalties that the franchisor requires.  To allay these concerns, Five Star Business Brokers of South Florida lays out the benefits of being part of the franchise in the listing material presented to a buyer. Some buyers may not be aware that franchised business models are, in the aggregate, far more successful than non-franchised business models. Why? Because franchised business models have an established and proven recipe for success (at least one would hope!).  If the franchise has a recognizable brand name and has strong advertising for the benefit of its franchisees, then that is also a major plus that can not be overlooked. Moreover, a franchise has built-in legal protections for buyers of franchises. This consists of the FDD (Franchise Disclosure Document) which must, by law, be given to all prospective purchasers of franchisees (or purchasers of new franchised territories). As a result, buyers of existing franchisees will receive a treasure trove of due diligence material that is not ordinarily available. Buyers can thus thoroughly look at the financials of the franchisor, review its legal history, and contact other franchisees to learn about their successes or failures.

As one can see, buying or selling an existing franchised business has challenges but also many benefits. When properly presented, sellers will benefit from the peace of mind and the successfully proven business model that being part of a franchise will bring to prospective purchasers. Ultimately, it is up to the buyer to weigh these benefits with the monetary costs and restrictions of being ‘franchised.’ Call Martin today at Five Star Business Brokers to answer more of your questions about buying a franchise or selling your franchised business.

Located in Palm Beach County, Florida, Five Star Business Brokers proudly transacts business sales throughout the areas of West Palm Beach, Lake Worth, Palm Beach Gardens, Boca Raton, Jupiter, Delray Beach, Boynton Beach, Wellington, Palm Beach, Royal Palm Beach, and Riviera Beach.

Leave a Reply