Selling with Your Franchisor vs. Hiring an Independent Party

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Most business owners know that instead of turning around and locking the door to your business the final time, it’s much better to hand the keys over to a willing buyer in exchange for a sizable check.

What may not be so clear are the options when you decide it’s time to sell. List your business with your franchisor? Or seek the services of an outside party?

The good news is, you have options. And that’s the first point to understand. Just because you are a franchisee in a network, doesn’t mean you can’t go outside the business family to seek representation. It’s up to you to understand the pros and cons of this decision.

Listing with the franchisor

Most franchise groups have a resale arm that helps owners transition out of the business. Some have dedicated teams, and others are far less organized.

Pros

Your franchisor already understands the brand.
You won’t have to spend a lot of time explaining what business you’re in and how you make money. Of course, the franchisor already knows this, which means you can skip this learning step altogether and save time.

They have an established pool of buyers
There’s a good chance that the buyer of your business is already an in-network franchise owner. This can make for a clean transaction and easy transition.

Could be cheaper, but not always
Sometimes a franchisor will discount their fee and charge less than the customary percentage charged by an independent business intermediary. However, those savings could dry up fast if they’re also charging you a monthly retainer fee. If your business lingers for sale for months, or even years, you could end up paying much more.

Cons

Reselling your business isn’t their priority
Franchisors are in business to sell new territories and expand the brand. This is at the core of the business model. Reselling territories doesn’t net nearly the same revenue over time, so, naturally, they wouldn’t focus on it. Unfortunately, this could mean your business will take many months and years before you’re able to move on.

Less help in the due diligence process
Selling a business is a complicated transaction. Dozens of details must be handled and in the correct order. The business has to be packaged for a sale to make it attractive in the market. Plus, the business should be pre-qualified for an SBA loan. Because they lack the resources (and perhaps the expertise) that a true business intermediary has, franchisors may skip these steps. This means the burden shifts to the business owner. Getting it wrong means at best, selling for a discount, and at worst, having deals fall apart.

Some franchisors simply refer buyers directly to the business owner resulting in a lot of time spent working with buyers. As a business owner, your focus should be running your business, not working with potential buyers.

Confidentiality
Confidentiality is key for any business owner. If customers and employees found out, it could be damaging and destroy value. It’s difficult for franchisors to advertise your business and the location without giving away your identity. Worse, if random tire-kicking buyers walk in your door, it could create an uncomfortable situation.

Listing with a business intermediary

Commonly referred to as a business broker, a business intermediary ONLY works for you. They have no loyalty to your franchise group and won’t be swayed by internal politics or other pressures. They have your best interest in mind. The more you sell your business for, the more they get paid. It’s a win-win.

Pros

You have a larger pool of potential buyers to draw from
Professional brokers maintain lists of buyers that are looking for businesses NOW. It extends beyond your existing franchise network. Many have been pre-qualified and are ready to move quickly. In ideal situations, multiple buyers indicate their interest and it becomes a competitive bid situation. Your business may sell for more than what you listed it for. Often, experienced brokers have prior experience working within your industry and brand.

This is all they do
Business brokers only get compensated when a transaction happens, so they are not distracted by other corporate initiatives. They don’t have a cushy salary so they are motivated to keep on top of details and keep deal momentum.

Confidentiality
Because brokers list many kinds of businesses and in different industries, it's easier for them to keep listings confidential. They can advertise the city or county the business is located in without giving away identifying details. Buyers only find out about your exact business after they sign a Non Disclosure Agreement (NDA) and are pre-qualified.

Due diligence support
Brokers work hard to find buyers and when they do they want to make sure there are no reasons why buyers shouldn’t move forward. Educating the buyer on the details of the business and franchise process in the beginning can prevent wasting valuable time. This is why brokers work closely with sellers to clean up the books, get documents together, and work with banks to get the business prequalified for an SBA loan. Sellers need to stay focused on business operations and keep revenues high. It’s the broker’s job to package the business so that buyers have the confidence to take the next step.

Cons

Your franchisor could kill your deal The franchisor ultimately has to approve all buyers and owners of their brand. Without their approval, the deal won’t close. Brokers know this and pay particular attention to buyer quality before they move forward. However, the franchisor holds the power here and makes the ultimate decision.

If you’re thinking about listing with both the franchisor and an independent broker, you likely can do that. However, there is a downside. Regardless of who brings you the buyer, you likely could be responsible for paying a commission to both parties. Few sellers want to pay double fees but it's not unheard of. Sellers that are desperate or just want out at all costs have chosen this option before.

It’s important to note that you don’t have to list with the franchisor. You can list with an independent broker and will not have to pay additional fees to the franchisor.

Franchise broker, Jon Franz offers this advice. “Regardless of which option you choose, I would encourage everyone to have some representation, even if you have identified a buyer yourself. In that case, ask for a discount. If you’re bringing your own buyer and just need help with the transaction, that’s less work, and therefore you should pay less. Be aware that there are all kinds of unforeseen circumstances that could come up during the contract period and an experienced broker can assist with navigating the transaction.

Lastly, speed matters. When business owners make the mental decision to sell, the clock starts ticking on their attention span and the effort they put into the business. You want to get it sold before a lackluster performance starts to show up on profit and loss statements. If the sale lingers too long, you’ll almost always sell for less than you should. Be sure to ask your seller representative how long deals typically take to close and how much interest they think they can generate. Time is your enemy.”