At some point, the owner of a profitable franchise will want to capitalise on their investment and will look to sell the business. There are 4 key elements that need to be identified so that potential investors have a clear understanding of the business and the benefits of investment.
The purpose of the process
What are the primary goals and motivations? There can be different objectives depending on the owner’s specific requirements. For example, do they want to sell the whole business, do they want to just sell a few locations or do they want to part-sell in order to raise capital for future expansion. Areas for consideration will include:
- The percentage of the business to be sold
- The transition period required (typically determined by the current owner and their willingness to support the new owners)
- The management of all franchise assets
The preparation of accounting records
Accurate accounting is essential, it is important to focus on operational efficiency as well as valuation. The following are key elements that will need to be prepared and continually monitored:
- Income and expenditure
- Value of operational assets
- Debt and cashflow
- Variations in working capital
- Accrual, deferrals and other accounting factors
Being transparent and having everything well documented is a major positive as it demonstrates professionalism and credibility to future investors.
A reliable team
Having a robust management team and reliable HR function will ensure a successful transition in ownership. It is beneficial to consider the following:
- Ensure there is no reliance on just one single point of contact for a specific element, every aspect of the business should be transparent and accessible for all
- The management team should be fully aligned with the goals of the business and adaptable to change so that they can be an asset to any new owners
- A diverse skill set is a must with professionals who are coherent in all commercial, financial, administrative and HR aspects of the business
Be realistic
Undertaking a thorough business assessment will demonstrate the true value of the franchise. Owners need to use this and be very realistic in what they can achieve through a potential sale. Negotiations need to be based on fairness for all parties involved so having accurate data will be crucial.
Finally, the sale of a franchise business can be complex. If you need help from franchising experts, then our team are on hand to offer support and guidance. To speak with one of our team please call us on 01993 706403 or e-mail hello@ngifranchisefunding.co.uk.