As a franchisor, it is essential to have a plan in place for when you are either approached by a prospective buyer or simply wish to move on and sell your franchised business. Having a well-organised franchised system that complies with legal requirements makes your business more appealing for purchase. This article guides you on key actions before selling your franchise to ensure its organisation and desirability.
Prepare Legal Documentation
There are various legal documents you must get in order before selling your franchise system, such as:
- commercial leases, licences and permits necessary to operate the business;
- any franchise agreements;
- disclosure document and all other documents required under the Franchise Code;
- employment contracts;
- supply contracts;
- documentation showing ownership of intellectual property, including patents, logos, trademarks, etc;
- intellectual property licence agreements (if applicable) where a third party owns the intellectual property;
- licensing and distribution agreements; and
- operations manual, including any additional workplace policies/procedures.
Both you and your franchise lawyer must ensure the proper execution and legal effectiveness of these documents.
Conduct a Franchise Audit
Prior to selling your franchise system, it is crucial to conduct a thorough and comprehensive franchise audit. This entails actively reviewing all aspects of your franchise, such as:
- key legal documentation;
- financial records;
- operational procedures; and
- overall adherence to industry standards.
A meticulous franchise audit plays an essential role in uncovering potential issues or areas requiring improvement that could impact your sale. It also ensures that the franchise system aligns with applicable laws and regulations, reducing legal risks for both you and potential buyers.
Continue reading this article below the formKeep a Record of All Important Dates
As a franchisor, you must keep an up-to-date register of any important dates that are relevant to the sale of the franchise system, including when:
- existing franchise agreements expire;
- existing franchisees are required to provide you with a renewal notice; and
- relevant lease and license agreements expire.
This is a non-exhaustive list. What dates are important often depends on the franchise business and the industry in which it operates.
Keep a Record of All Assets and Liabilities
An organised franchise business will have a register of all its assets and liabilities. You should regularly update this register to help prospective buyers to gauge:
- the value of the assets and whether such assets are wholly or partly owned;
- what assets have been leased; and
- whether you have any outstanding liabilities that may fall due at any time.
Having a clear asset record justifies your advertised franchise system price and validates the legitimacy of the assets being sold with your system.
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Keep a Record of All Finances
Maintaining accurate financial records is crucial to ensure a seamless sale of your franchise system. It not only enhances the marketability of your business for potential sale but is also a legal obligation. This includes documenting loans you take as the franchisor or those you provide to franchisees for purchasing into the franchise system.
Understand the Value of Your Business
If your business is under the care of an accountant, make it a priority to receive frequent updates on its market value. If not, you must take the initiative to independently research and compare your franchise system’s value to others in the market. This proactive approach empowers you to assess incoming purchase offers, ensuring they align with the current market positioning of your franchise system. You should also stay informed about market dynamics to make well-informed decisions that contribute to the sustained success of your business.
Key Takeaways
As you get ready to sell your franchise system, it is crucial to manage critical aspects effectively. Begin by meticulously organising your legal documents, collaborating with a franchise lawyer for compliance, and conducting a thorough audit. You must also keep up-to-date records of important dates, assets, and liabilities for transparent assessment by potential buyers. Furthermore, maintaining financial records, including loans, for enhanced marketability and legal compliance is crucial. Finally, you should stay up-to-date about your franchise system’s market value through regular updates or independent research. This will ensure that you can make informed decisions and evaluate purchase offers in line with market dynamics.
If you require assistance in implementing a plan to seamlessly sell your franchised business, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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