People like black and white answers to their questions; unfortunately, the question as to what is involved in selling a franchised business is not one where a one-size-fits-all answer will suffice. It fully depends on what the franchise agreement and any amendments state with respect to the rights and obligations relative to a potential transfer of ownership. Some of the things that you are likely to find are:
First Right of Refusal: In many cases the franchisor has a “first right of refusal” to buy your franchise upon whatever terms and conditions you have negotiated with an independent party. The existence of such a clause means that few buyers will be interested in pursuing your business, as they run the risk of doing all the investigation and review and then be left out of the picture. You need to know whether or not the franchisor has such a right and, if they do, whether or not they intend to exercise it.
Right of Approval: Most franchisors have the right to approve a successor franchisee with respect to their financial, business and other qualifications. These “Rights to Approve” typically have teeth in them to the extent that the agreements state that any unauthorized transfers of ownership terminate the franchise agreement. In many cases, the approval is also accompanied by additional conditions, such as obligation to enlarge, upgrade, open an additional location, etc.
Transfer Fee: Most franchise agreements require an “approved successor owner” to pay a transfer fee to the franchisor. Typically it is not a large amount and is generally considerably less than the fee paid by the original franchisee.
Training or Other Requirements: The backbone of most franchises is “standardized methods of operation”, and therefore many franchisors require that new inexperienced operators agree to attend and complete franchisor sponsored training before they are permitted to assume ownership.
Term of the Franchise Agreement: Few franchise agreements are in place forever, with most having expiration dates, and some having options for renewal. Therefore it is very important to have either a relatively long term left on your franchise agreement when you go to sell or already have renewal options negotiated and in place, which would be transferable to a new owner.
