How to Sell a Franchise Business in Australia

Whether it’s a retail chain or a German cafe, selling a franchise business in Australia is always an intricate and time consuming process. It requires careful planning and a deep understanding of current market trends, legal due diligence, and more. The franchise selling process differs from selling an independent venture because you don’t own the brand.

Since you are operating under a franchisor’s terms and conditions, ensure you thoroughly review your franchise agreement before putting the business up for sale. Despite financial distress in certain franchises, aspiring entrepreneurs and owner operators are seeking potential opportunities to kick start their career with a renowned brand.

To sell your franchise business, you must adhere to the necessary legal obligations, obtain the franchisor’s approval, and ensure that both you and the buyer maintain transparency to prevent post sale disputes. Today, in this guide, we’ll discover practical tips to help you sell a franchise business in Australia in the most streamlined manner. Whether you are looking to retire or simply switching the industry, this guide will make the process breeze for you.

1. Carefully Review Your Franchise Agreement: Understanding Obligations

As mentioned above, your first step should always be to thoroughly read the franchise agreement before selling the business. It is a legally binding document between the franchisee and franchisor that outlines specific terms and conditions for selling the franchise business, relevant approvals, and whether any transfer fees apply. Some franchisors retain the right to reacquire the franchise upon sale, limiting the freedom to negotiate prices with external buyers.

Therefore, it is vital to review the franchise agreement to understand specific obligations and prevent potential mistakes, legal disputes, breach of contract penalties, and financial losses. The franchise agreement in Australia includes the following obligations:

• The franchisor has the right to first purchase the business
• The franchisor will interview the potential buyer
• The franchisor will approve the potential buyer
• An assignment fee is included
• The cost of training the new buyer
• Business registration papers to the new owner or back to the franchisor
• Returning operation manuals to the franchisor
• Surrendering loyal customer lists, email addresses, SOPs and domain names
• You can’t trade as a competitor in the same market.

2. Notify the Franchisor

Most franchise agreements require you to inform the franchisor before listing the franchise business for sale. Under the Franchising Code of Conduct in Australia, the franchisor has the right to accept or reject a potential buyer.

3. Evaluate the Franchise Business

Selling your franchise business at the right price plays a pivotal role. Knowing the actual worth can make a world of difference. It is important to assess your franchise’s financial health, including its goodwill and market value. You can also consult with your franchisor to know the market value or hire a professional to set a competitive selling price to gain traction. Here are some common methods for business valuation:

• Asset valuation method – Value intangible assets and tangible assets
• Capitalised future earnings methods
• Earnings multiple methods
• Comparable sales method in the current market

Ensure you thoroughly examine your franchise agreement to identify the clauses related to setting the selling price.

4. Prepare Your Franchise for Sale

Once you know the selling price, prepare your franchise business for sale. Prospective buyers in Australia often ask for at least three years’ worth of your financial statements, income tax records and other financial details to know your actual worth.

So, conduct a thorough financial due diligence, update your financial records, review lease agreements, fix operational inefficiencies, prepare supplier agreements and contracts, etc, to ensure compliance with franchise obligations.

Note: The franchisor can help provide support and necessary resources to help you streamline the selling process.

5. Promote Your Franchise Business to Attract Buyers

There is no denying that the selling process requires a thorough promotional strategy to attract the right buyers. Here are a few things you can do:

Create a Sales Prospect: Create an advert to represent the unique advantages, features, benefits and strengths of the business. You can encapsulate its financial health and market standing.

Write a captivating listing: You can list the sale of your business online to attract the right buyers quickly and easily. It is one of the best ways to highlight the USP of the franchise and draw in potential and aspiring individuals without a hint of stress. You can find various reliable platforms where you can post your business advert at the best price.

Discover marketing avenues: Leverage digital platforms, social media channels and the franchisor’s network to build connections with potential buyers. It is always good to sell the franchise that brings the same level of dedication and ambition to the venture. It is good to choose new franchisees who meet the franchisor’s set criteria to avoid delays.

6. Obtain Franchisor’s Approval

This is a must have step that may involve background checks, financial assessments and of course training. Make sure you do this to avoid last minute delays. Also, prepare a Non Disclosure agreement to keep credential information secure.

7. Draft a Business Sale Agreement

This is a legal document signed between you and the buyer. The agreement includes the purchase price, payment terms, the transfer of assets, and ongoing obligations. You can hire a professional lawyer to draft or review the business sale agreement and protect your interests.

After the sale, you’ll need to transfer franchisee ownership by handing over all relevant assets and information to the new franchisee. This includes physical assets, customer base, financial data and operational paperwork.

Wrapping up

Selling a franchise business in Australia requires financial, legal and operational due diligence. It is good to thoroughly read the franchise agreement, understand your obligations, negotiate the selling price, and obtain the franchisor’s approval before listing the sale of the business online.