Becoming a Franchisor: Selling Your First Franchise
It sounds easy doesn’t it? “It only takes one.” You might hear that type of saying in sports or in business. A rally in a baseball game starts with the first player to reach base. Couple that with a few walks and hits, and the runs will add up on the scoreboard. But you have to get the first one to get moving. The same can be said when trying to sell your first franchise.
Of all of the issues and concerns facing an aspiring franchisor, one of the biggest and most stressful is selling your first franchise. Like selling a new product with no track record or hiring a recent college graduate, there’s no past performance with which to gauge the value and potential success of a first franchise with the franchisor.
Who’s going to take that risk?
It would be nice if a prospective franchisor had interested investors and potential franchisees flocking to him or her offering money and willing to sign a franchise agreement on the spot. Yes, it would be nice, but it rarely happens. Sure a customer may stop by your office to tell you how they love your business concept and ask about buying a franchise even before you even have thought about franchising or started to prepare a franchise offering, but don’t count on it.
Look within your organization for a possible franchisee
As an aspiring franchisor with a successful business that’s well run by a trusted manager or senior employee, consider that person as a candidate to buy the business at that location and become the first franchisee of the company.
This manager or employee already has a great deal of experience in the industry and in particular with your business model because they’ve successfully managed your business as an employee.
To facilitate a franchise arrangement, work with a business advisor like Andrew Rogerson in Sacramento to negotiate the sale of the existing business. The manager will purchase that business at the present location and agree to continue operating it as a franchisee of your company. The buyer would form a company that would sign a franchise agreement in the purchase of the business.
Credit options and maximizing franchisee success
A way to attract that first franchisee is to extend credit for some of the purchase price or possibly waive the payment of any initial fees and allow an extended grace period on the payment of royalty and marketing fees that are common in franchise agreements. As a franchisor and especially with your first franchise, you should make every effort to maximize the new franchisee’s odds of success.
Obviously, that first franchisee’s success is critical because that first one will be the initial validator of your system for future franchise buyers. It only takes one.
Legal concerns and disclosures
With just the one franchisee, you as the franchisor are not likely to include financial performance representations in your franchise disclosure document (FDD). If you don’t provide numbers in Item 19, a franchisor may not discuss numbers orally… only an existing franchisee can do this.
There are other legal requirements of franchise registration and disclosure, which may require the preparation and disclosure of audited financial statements and other data. Speak with a business advisor to avoid the expense, time, and effort of preparing a detailed FDD and registering it with the state.
Andrew Rogerson can work with you to start small and test your first franchise concept before preparing a disclosure document and registering because the Federal Trade Commission’s trade regulation rules on franchising say that a single license won’t require you to prepare a disclosure document. Check with Andrew on California franchise laws and to prepare all of your documentation correctly.
Successfully Selling Your Franchise
Andrew Rogerson specializes in helping business owners with their business franchises including the many steps of this type of transaction. This includes a business valuation, creating a marketing strategy to find qualified buyers, and handling all phases of the transaction including third-party finance for the buyer, due diligence and escrow. Andrew is the author of “Successfully Sell Your Business” which is available for immediate download.