In recent times, a number of franchise systems have been bought and sold. As a franchisor, it is a good idea to have an exit strategy in place for when you are either approached by a prospective buyer, or simply wish to move on and sell your franchise business. What is certain is that having everything in order will make your business far more appealing than if it were disorganised and in shambles. An organised and well set-up franchise will sell for a much better price.

Legal Documentation

There are a number of legal documents you need to get in order before selling a franchise system.

You should have copies of the following:

  • commercial lease agreements;
  • any and all franchise agreements;
  • employment contracts, including names of existing employees;
  • supply contracts;
  • documentation showing ownership of intellectual property including patents, logos, trademarks, etc.;
  • intellectual property licence agreements (if applicable) where the intellectual property is owned by a third party;
  • licensing and distribution agreements;
  • operations manual, including any additional workplace policies/procedures;
  • licences and permits (if applicable) necessary to operate the business;
  • certificates that need to be collected from each franchisee under the regulations of the Franchising Code of Conduct; and
  • if there are directors of the business who have provided guarantees, copies of any of the guarantees.

It is important for you (or your franchise lawyer) to check that each of the legal documents mentioned above have been properly executed and are legally effective.

Keep a record of all important dates

As a franchisor, you should keep an up-to-date register of any important dates.

Some important dates may include:

  • when franchising agreements expire;
  • when franchisees are required to provide you with a renewal notice;
  • when licensee agreements expire; and
  • when lease 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, and should take steps to ensure that this register is regularly updated.

This will help prospective buyers be able 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 which may fall due at any time.

Keep a record of all finances

It is also important for you to have kept a proper record of your financial documents. This is not only so that your business will be more attractive when you sell it, but is an obligation by law.

How much is your business worth?

If you have an accountant that looks after your business, you should seek regular updates as to the market value of your business. If you do not have an accountant that you regularly use, then you need to do your own research.

Keep yourself updated and check the value of your business against other businesses in the market. Doing so will enable you to know whether or not someone is making you a fair offer for your business.

Conclusion

If you are looking into selling your franchise system and feel underprepared, contact LegalVision on 1300 544 755. Our franchise lawyers have assisted franchisors in the past in selling a franchise system, and would be delighted to help you too!

Priscilla Ng

Next Steps

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