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When a franchisor has an opportunity to sell its company it needs to be properly prepared for the due diligence process. There are a number of steps that franchisor’s can take to prepare for a possible sale to avoid any problems from arising.
Franchisors have a number of reasons for selling: ranging from the opportunity to earn a significant return on the transaction to personal reasons. Whatever the reason, selling a franchise company can present added challenges compared to selling a non-franchised business. Although a franchise company presents the potential buyer a network of franchisees, this perceived advantage can easily become a disadvantage. There is no doubt that a potential buyer, which will acquire franchise agreements and the franchisor obligations will conduct a vigorous due diligence.
In addition to the routine steps companies take when preparing to sell their business, a franchisor needs to exceed these steps. Many of the items that can impact a potential sale can’t be corrected in a short period of time but rather might take months to resolve. The key word is: Preparation
An existing franchisor, considering the sale of their company, should consider the following items:
Although comprehensive due diligence will be conducted by potential buyers, the scope of due diligence will increase based upon the size of the transaction. There are other items to consider, however, the preceding are among the more important. The purchase price of a franchise company is based in great part upon the value of the franchise network. That franchise network and its franchisees, which operate under franchise agreements, can be expected to undergo a good deal of scrutiny. As a final point, buyers should be considered in terms of being compatible with the franchise network in order to avoid any possible conflicts.
About the author: Ed Teixeira has over 35 years of franchise industry experience as a franchise executive and franchisee. He has served as a franchise executive in the c-store, manufacturing and home healthcare industries and has licensed franchises in Asia, Europe and South America. Ed operates FranchiseKnowHow which provides information and advice to prospective and existing franchisees and franchisors. He publishes newsletters for the franchise community.