ARE YOU SELLING YOUR FRANCHISE BRAND? What franchisors should know about navigating the process..

Author:Wilson, Kevin

When starting a business, the end goal is to grow it, maximize efficiency and profitability, and often sell it for a hefty sum. However, the process of getting there isn't always that cut-and-dry.

If considering a sale, franchisors need to understand all steps in the process and find the right people and partners to navigate it. Below are some best practices when approaching a sale.

Research Independently

Business owners exploring a sale should perform detailed, independent research. Is your brand attractive to buyers? Have other similar brands sold recently? What are competitors doing? In most cases, you'll want to pursue several investment banks, focusing on financial performance, growth potential, leadership, market overview and competitive analysis.

Host a "Beauty Contest"

Companies should invite investment banks to express interest in representing them. "Beauty contests" can last a couple days, depending on the number of participants. Each bank presents its representation, positioning strategy and opinion on your company's value. Owners then narrow the pool and choose their bank. Finding a good bank who runs a competitive process is critical to maximizing your business value. You want one that can provide valuable insight, validating your research, particularly around market conditions and buyer appetites.

Select a Law Firm

Most companies already have a legal firm for franchise matters, contracts and employment law. Depending on their size, they may have experience in selling businesses. The size of your business and likely buyers should determine the firm and lawyer that is used. Your bank partners can also introduce you to firms.

Prepare Sales Materials

Develop sales materials with your bank, primarily a comprehensive pack of information that details the business history, team, financial results, operations and growth prospects. The bank uses this information to determine buyer targets. Potential buyers receive a confidentiality agreement informing them of your intent to sell. The bank then asks buyers to provide an indication of interest (IOI) if they intend to move forward. Your team then selects who advances to the management presentation stage.

Quality of Earnings Report

Before presentations, owners should consider a quality of earnings, or "Q of E" report, providing detailed analysis of a company's revenue and expenses typically going back three years. These reports are generally prepared by independent third-party firms during...

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