When you’re selling your franchise, it’s important to notify people in the right way and in the right order. Confidentiality is one of the most important aspects of the sale of a company. Knowing that there will be a change in ownership can be a distraction for staff; some might even decide to leave before the sale happens. If the deal becomes public knowledge, it becomes harder to keep the company running smoothly, and it may even affect profitability if vendors or competitors use that knowledge to their advantage.
Here’s what we tell our clients about notifying their franchisor:
Your franchisor appreciates being informed of the sale as early as possible. But there’s almost never an advantage for the seller in doing so. We’ve seen it all over the years. We work with some franchisors who will advertise the opportunity to their internal network, even sending us potential buyers. We’ve seen others who reach out to buyers to try to sell them a new unit rather than the one they wanted to buy. We’ve known franchisors who already have a corporate listing agreement to charge the seller a fee, even if they didn’t provide the lead.
Most franchise agreements don’t specify when an owner must tell them they’re selling, only that they must notify them before closing any deal (franchisors require buyers to be approved anyway, so that’s not an issue in most cases).
We recommend having a Letter of Intent in hand before notifying the franchisor. At this phase of the deal, the seller will have a pre-qualified buyer with a strong offer. With an offer in hand, the seller is introducing the new owner to the franchisor, rather than asking permission in advance. The negotiations will be concluded, and the deal will just need the franchisor’s approval, which is true of any sale. Notifying the franchisor after you have accepted an offer also helps prevent having to provide updates or changes to the plan if a buyer falls through or renegotiates the terms.
It’s also possible that if a franchisor is notified too early in the process, employees or other interested parties may obtain and share information, which can make negotiations harder and more stressful for anyone.
Consider working with a broker who understands the franchise industry and has a track record of successful sales. They will help you understand the terms of your franchise agreement and advise you about when and how to notify everyone who will be affected by the sale.
When you control the timing, you can control the message. You can prepare to position the sale and transition to new ownership as a positive step for the company, the staff, and the customers you serve.
