Hiring The Right People
Many franchises - such as food, hospitality and...
Franchisees sometimes wish to exit their franchise agreement for some reason, selling their business and pursuing other avenues. This creates an opportunity for somebody else to purchase a business with an established location and client base. However, before you start negotiations, there are some things that you must first consider.
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Important considerations
Why is the existing franchisee selling? Are they withdrawing from the business for personal reasons, due to a personality clash with the franchisor, or because of cash flow issues?
Are you sure that you will not face the same problems? By understanding why the existing franchisee is selling, you can assess your own circumstances to ensure you will not suffer the same fate.
Are the terms fair? Scrutinize the terms of sale, including facilities lease agreements and the franchise agreement, closely to ensure that buying a pre-owned franchise represents a solid investment and good value for money.
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Negotiations
It is important to remember that even in selling, the seller must fulfill the terms of their franchise agreement, so there should be scope to deliver an attractive deal to the buyer. You could consider negotiating on the following key areas:
Transfer fees: You could ask for transfer fees to be reduced, subsidized or covered by the seller to expedite a smooth transaction.
A new franchise agreement: Instead of updating the existing franchise agreement to reflect a change in ownership, you could request an entirely new franchise agreement with more favorable terms. This may be of particular interest if the sale is due to a dispute over any specific terms between the seller and their franchisor.
Outstanding financial obligations: Check whether the seller has any debts or invoices that are due payment that would pass to you as the new buyer and agree on how these will be handled prior to finalizing the purchase. You may stipulate that these be cleared prior to purchase or use them as leverage to achieve a reduced purchase price.
Third-party interest: There may be third parties with a vested interest in the business, its site, equipment or inventory that will need to be satisfied with the sale and will be involved in any transfers of the title. It is vital that you understand which third parties have an interest in the sale and what the impact would be should they disagree with any proposals so you can negotiate this territory confidently.
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In short, buying out an established franchisee has many benefits and is a quick way into the market, but you must take the time to fully consider all of the facts and negotiate any points of concern. Seek legal and financial advice where necessary and make sure to enter into the agreement with your eyes wide open.
