Selling A Franchised Business

What is Involved in Selling a Franchised Business?


The best answer is, ‘It depends!’ By that I mean it depends upon what your franchise agreement and any amendments state with respect to your 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 being left on out of the picture. Anyway, you need to know whether or not the franchisor has such a right and, if they do, whether or not they intent 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, etc. 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. In most cases, 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, and therefore most have expiration dates, some have options for renewal, etc. --- and 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.


The foregoing are the primary issues that you will have to understand and possibly have to deal with in the sale of your franchised business. You should also find out if your franchisor actively resells franchise locations and what their track record is in so doing. Some franchisors have good programs in that they are typically always advertising for brand new franchisees and thus have prospects for existing franchises; however, the reality is that most franchisors are far more interested in the sale of a new location (with large front end and real estate related fees and profit potentials) than they are in the resale of an existing location.

Hopefully the foregoing gives you a good head start in understanding the process that you are about to undertake.