Marcus-Adam Tuck

Solicitor

Corporate Law


Preparing a franchisee’s exit

Marcus-Adam Tuck

Selling your franchise business may be one of the most significant things you may do in your life. It is therefore vital that you receive the best advice to help you achieve the best terms for your exit.

The best advice is to start early in planning your exit and that means having the right professional advisors on board from the outset. You will require a lawyer and may also require a lead corporate finance advisor and a specialist accountant familiar with franchise re-sales. Engaging the advisors at an early stage will add value to the process as they will have time to get to know your business, understand your aspirations and iron out any issues which may need attention before the business is marketed for sale so as to make it as attractive as possible to potential buyers. Your accountancy advisors can also assist with your tax planning ahead of your exit. 

Buyers (as well as the banks and others who are funding acquisitions) remain sensitive to potential issues that may emerge as part of the ‘due diligence’ process undertaken during the sale which is why you need to identify any potential problems at an early stage. It is also extremely important in the context of selling a franchised business to ensure that you are aware of the costs/fees and that you comply with your obligations or prior purchase options which may be due or owed to your franchisor. 

Additionally, increased regulatory and compliance burdens on companies mean they need to be better managed than ever, to avoid the dreaded ‘price chip’. Unexpected liabilities could ultimately prejudice your valuation. 

A key factor when structuring your sale will be the decision whether to sell your operating company wholly (by selling all of the shares in your limited company) or whether to sell the  business assets and retain your company (this is called an asset sale). There will be tax implications on which route you choose and likely your decision will largely be influenced by your accountant’s advice. From a legal perspective, a share sale means that you can step away entirely from the business and your operating company (subject to the terms of the share sale agreement) which many franchisees find attractive. On the other hand, an asset sale allows for greater flexibility in that you would retain your operating company having sold all or part of your business (comprising of the equipment/property/contracts etc.). This may be very useful if you operate multiple franchises under a single company but wish to only sell part of your business. 

Do remember however; what may be the preferred route for one seller could be completely different for another. There are financial, personal, taxation and legal matters which you would need to consider with the help of your team. In assembling your team several factors are important such as: 

  • experience and technical ability;
  • sector knowledge (particularly experience of franchise arrangements);
  • pricing;
  • depth of team and approach; and
  • personability. 

At Fraser Brown our practical solution driven approach has assisted numerous franchise business sellers achieve a successful exit.

 

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