Franchise Times — January 2012
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Exit Strategies
Jon Franz

Follow these critical steps to resell a location without surprises

For years I’ve been amazed that more than 80 percent of businesses listed on the open market don’t sell. Selling an existing franchise business is a complicated process, often requiring a checklist of several hundred steps. Omitting a step, or even performing a step late, could have disastrous effects on the resale transaction.

For example, franchisors often require upgrades and enhancements at time of transfer (costing thousands of dollars). If detailed information is not provided to both seller and buyer prior to executing an agreement, buyers—typically the party responsible for upgrades—may decide to walk away from the transaction. To make matters worse, this often occurs right before the closing table.

Surprises like that may not always kill the transaction, however corporate will receive stressful, time-consuming phone calls from frustrated buyers unaware of the upgrades required of them.

Be upfront to avoid surprises at closing

Other surprises buyers are not happy to hear about late in the game include transfer fees paid to franchisors (sometimes costing more than $10,000, or higher) and assignment fees paid to a landlord ($2,500, or higher).

Including requirements information upfront in the process is an extremely important step in the resale process. Providing requirements prior to executing an agreement will help eliminate surprises at the closing table and hold the deal together.

File sharing

Not only does the resale process include multiple steps, it includes multiple f iles—often too large to email— shared amongst multiple parties including buyers, attorneys, CPAs, landlords, franchisors and lenders.

Most sellers are not aware of the complete list of files buyers will need to review, nor are they familiar with how buyers want to see the information. Buyers do not want to request file after file from the seller. An online collaboration system—or cloud—helps connect parties and provides the necessary transparency by sharing files.

Mispriced opportunities

If the seller gets tied into a listing agreement with a local broker that does not educate the seller on proper pricing techniques, the franchisee will be tied into a one-year listing agreement to find their over-priced, or mispriced, business never sells. Therefore, their sales and profits decrease; royalties decrease; the business is worth less; or they are in jeopardy of going dark. It is critical that sellers are educated on the pricing of their business, and the steps involved to properly value their business prior to market.

Avoiding these types of mistakes will help prevent a franchisee’s locations from closing. Having a defined resale program in place, one that effectively educates all parties to the transaction—not just sellers—is key, and better allows franchisees to exit when they need to.

Jon Franz is founder & CEO of Franchise Clearly, a management consulting firm specializing in franchise resales. Visit www.FranchiseClearly.com or contact Jon at Jon.Franz@FranchiseClearly.com.
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