Here are 5 tips for selling a business, a handy business valuation tool.
The impetus to sell your franchise business can come from any number of directions and at any time.
The market could change, someone could pass away, an unsolicited franchise might offer to buy you, or the founders might simply get bored and want to do something different than remain in the franchise business.
Whatever the reason, selling a business is a big step that should not be taken lightly. Nevertheless, when it is time to sell your franchise, you want to be clear on your motivations, and have a business valuation which supports the price you want for the franchise business.
It's Valuable to Be On Top
Selling a business in a hot market is always better than the other way around. People want to associate with winners. If your franchise business is on a winning streak, people will be more likely to pay more for it.
Should financial markets determine whether you should be selling a business? Probably not.
However, if you are going to be selling a business, you are better served by selling while both the market and your franchise business are in their best shape.
Determining when your franchise business is performing at its peak is often a job for a fortuneteller, but you can do some simple trend analysis to see where you stand, part of more detailed business valuation.
Your Relative Market Standing
Here are the 5 business valuation tips you can perform to see where you stand with respect to the rest of your market, in particular, and the overall market, in general:
- Has your franchise shown a profit for the last five fiscal quarters? If so, you are immediately a viable financial investment.
- Are your historical net-income-before-tax results increasing over the prior five quarters, or are they erratic in nature? Financial markets like consistency, and the more consistent the income figures the better your franchise looks.
- Has your franchise been gaining market share with respect to other franchisees in your industry? If so, you look even better. If not but your income continues to grow, it means the management is doing something right with respect to operations.
- Has your franchisor recently added new products, services or other features with hot market potential? If so, selling now while the iron is hot may not be a bad idea.
- Is your franchise located in a growing market that is showing above-average increase in potential customers? If so, then you might want to sell your franchise even if some other financial parameters are not in optimal condition. Remember that when selling your franchise, you are competing with other investment opportunities. If other investments are not performing as well as your franchise, your franchise could represent a solid investment.
Any one of these reasons, along with numerous others, might be reason to assume that your franchise is on a solid upswing. A combination of several reasons makes the business valuation case even stronger.
The point is that you must do some market research for yourself to determine the performance of your franchise with respect to the others in the industry to get your price.
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Thanks Larry! Just a couple of quick points for franchise owners to consider.
Before putting the business up for sale, check your lease.
Retail businesses are often located in leased premises, and the terms of the lease can materially impact the businesses marketability and value.
Here are a few lease-related issues to consider.
1. Landlord's Consent. Do you need the landlord's prior written consent before assigning the lease? If yes, determine whether landlord can withhold such consent in its sole discretion or whether consent cannot be unreasonably withheld, delayed or conditioned. Proceed accordingly.
1. Is there a Take Back Provision? A Take Back Provision provides the landlord with the right to recapture leased premises under specified conditions. Know what you're getting into, and structure your requests to the landlord accordingly.
2. Is there a Profit Sharing Provision? Many retail leases call for the diversion of part, or even all, of the sales proceeds. If there is such a provision, seek to negotiate it out.
3. Are options [to extend or renew] personal to the original tenant?
Obviously, purchasers value the ability to extend the lease, allowing them to remain under predetermined conditions if the business is performing as anticipated.
Unfortunately, some options are personal to the original tenant, severely impacting the businesses' value and marketability.
Again, if there is such a provision, seek to negotiate it out.
These are just a few of the lease-related terms that can either enhance or detract from the value of your franchised business.
Best wishes with your sale/acquisition,
Randy
Missing from the article.
Is there a requirement to bring the location up to standards by a remodel? Franchisees in the QSR sector often encounter problems if the location hasn't been remodeled recently or if a remodel is required.
This can impact the sales price significantly.