Can I sell my business?

Those thinking of buying a franchise are often told by their prospective franchisor that they will be able to sell their business when they are ready to retire or move on. Manzoor Ishani explains the facts.

The bfa/NatWest Franchise Survey in 2004 showed that 13 per cent of franchisees buy a franchise to increase their investment. However, those who buy on a promise from a franchisor that they will be able to sell often forget that any such promise comes with certain terms and conditions. Most franchise agreements are very clear about such conditions.

If you are a prospective franchisee, you should reassure yourself by looking closely at those clauses in the franchise contract that deal with your right to sell your business and the conditions attached to such a right. So what conditions should you expect to see?

Firstly, you are not in breach of contract at the time of the proposed sale; secondly, your franchisor gives their consent and approves of your buyer; thirdly, your buyer passes your franchisor's training course; fourthly, your buyer signs a franchise contract thereby agreeing to abide by the terms of the franchise in the same way as the other members of the franchise network.

Depending on the nature of the franchise and the franchisor, there will also be other conditions, namely:
• Refurbishing of premises (where appropriate)
• Upgrading the franchised business
• Payment of the franchisor's costs and (sometimes but not invariably) some sort of fee by way of renewal
The condition that creates the most difficulty is where the franchisee must obtain the franchisor's consent. Franchisees need to be reminded that one of the prime objectives of a franchisor is to ensure that standards are maintained, and this means ensuring that all franchisees satisfy the franchisor's criteria with regards to ability, skill, financial strength, character, etc.

Just as franchisors are very careful in the selection of their initial franchisee, so they are keen to be equally careful in approving an incoming franchisee who buys from an existing one.

Many franchisees often feel uncomfortable with the franchisor retaining discretion as to who they can sell their business to. Franchisees usually content themselves with having to rely on the reputation of the franchisor by talking to existing franchisees and doing their homework to see whether or not in the past, the franchisor has exercised such powers as it has retained, reasonably.

It is not all one sided in favour of the franchisor. One has to remember that a franchisor has little to gain by being obstructive and in my experience there has been little abuse of such a condition by a franchisor.

As always, a distinction has to be made between those franchisors who are ethical and those who are not. You therefore need to take care to investigate the franchisor's track record and background thoroughly (by talking to as many of their franchisees as possible).

You must also take proper advice on the franchise agreement - the same set of conditions can have remarkably different effects when operated by different franchisors.

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