How Being A Franchise Affects Your Business Exit

Ron Rajecki examines how selling a franchise is the same as and different from selling any other type of business.

Joining a franchise can offer short- and long-term benefits for the right… companies. For those interested in franchising, one common question that arises is, “How will franchising impact a prospective sale or exit?” Joe Bazzano, a principal with Beacon Exit Planning LLC, said, from a valuation perspective, cash flow and profitability of a business are of the utmost importance. And, to that end, being a franchisee may be a plus.

The core buyer appeals of profitability, good management etc., still apply with the added bonus of the franchisor’s credibility adding to the attractiveness of your offering. However, there are some snags. For example, you may not be able to sell to the highest bidder as the franchisor may not approve of their candidature.

“Being a franchisee limits your potential buyers,” Silberstein said. “From what I have seen, the franchisor generally has a right of first refusal or approval of the new owner who is taking over the franchisee’s business. That definitely limits your options.”

Further, being a franchisee limits the number of buyers you attract as not all buyers are interested in being part of a franchise and subject to the restrictions imposed by the franchisor. SBA loans have different eligibility criteria for franchise businesses and other lenders, too, might impose conditions specific to the purchase of a franchise business.

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