Practical considerations to achieve the best price
How to get prepared to achieve the best price
To achieve the best price for your business, you need to be prepared and understand the processes and conditions contained in the Franchise Agreement, the Lease (if there is a premises with a lease) and any licences applicable to the franchise business (such a liquor licence where the franchise business is a food outlet with a liquor licence).
If you leave it too late, you may end up accepting a lower price for a quick turnaround or may result in delays and complications arise.
It is important to understand that the franchisor has the right not to consent to the new purchaser if they feel they do not have the appropriate experience or financial standing to run the franchise.
You should familiarise and understand the transfer/assignment provisions contained within your franchise agreement. In most franchise agreements, the franchisor will have a first right of refusal to buy the business. You are required to offer the business to the franchisor first (on the same terms and conditions) before offering it to a third party.
If the franchisor does not wish to buy back the business and you have found a suitable purchaser, you should be aware that you may be required to pay a transfer or assignment fee under your franchise agreement. You should also check the restraint provisions and ensure that you will not be in breach of any ongoing obligations once you sell the business.
If your business is operating from a leased premise, you should also check the terms of the lease and in particular the assignment provisions under the lease. Landlord’s consent will be required before you sell your business.
The landlord will have strict requirements including being satisfied that proposed new tenant will have the financial standing and capability and experience to hold the lease. You need to further check whether at the time of signing your lease whether you were given an incentive or contribution for a fit-out, and in those circumstances, it is likely that the landlord would have a claw-back of those contributions upon any assignment or sale of the business operating from the premises. This could be very costly and may affect your sale price of the business.
With regard to the assignment/surrender and release under the franchise agreement (as applicable) and the assignment of the lease, you should make sure that you are released from all guarantees and obligations under the franchise agreement, the lease and all other contracts.
You should have all the financials and other documentations in a presentable form to give to a prospective purchaser and be prepared to negotiate. You need to have realistic expectation of the value of the business.
You should also have a valuation rationale for your business. Potential buyers will often ask how you arrive at the asking price. You will need to ensure you can justify the purchase price.
As part of your negotiations, you need to be careful that you do not misrepresent your business or its potential earnings to a purchaser. You could unknowingly be engaging in misleading and deceptive conduct. Misrepresentations are often made about turnover, customer traffic and franchisor support and training.
It is very important to ensure the business is running as efficiently as possible as potential buyers will want to observe the business in action prior to making a decision that the business is worth the asking price.
Things can become more complicated if your business in unprofitable or if the franchise network is under-performing and there is a lack of support from the franchisor. You may need to think about a realistic exit strategy and focus on any issues that may lessen the value of the business.
This may include upgrading technology and record keeping systems which increase the efficiency of your business and assist compliance with your franchise agreement and fair work requirements.
Don’t Hesitate to Reach Out!
If you would like to learn more about how DC Strategy Lawyers can be of assistance, we are happy to talk. We know that each business is unique and it is not a case of one size fits all. Our initial meetings are an investment on our behalf. We take the time to assess your needs and determine an action plan to move forward together.
Call 1300 993 624 or firstname.lastname@example.org