Franchise sales – Managing the process
Did you know there can be up to 14 people involved in the sale or purchase of a franchised business. 1. That’s a lot of different parties involved in one transaction. Let’s take a look at this now and break it down…
- The Franchisee (Seller)-it maybe one person, or a couple, or a few people but let’s say for this exercise it’s one.
– The Seller’s Solicitor – will be engaged to assess the contract of business sale and guide the Seller through the process up until Settlement where the solicitor will finalise the sale and exchange cheques etc. Must assist the seller with disclosure and compliance too. – The Seller’s Accountant – will be engaged to clarify financial data for the Buyer/Purchaser in a formal Due Diligence process.
- The Buyer / Purchaser could also be one person, or more, again for the sake of this exercise lets’ say it’s one. The buyer has a process to be adhered to before they can purchase a franchise business, there are so many issues to complete for various bodies such as;
-Their Solicitor – has a pretty big job here, they have to review all the agreements, such as; franchise agreement, lease agreement, tripartite agreement, phone system contracts and more as well as keep an eye on the contract timeline to make sure all conditions are satisfied in a timely manner to avoid requesting extensions at the expense of their client. -Their Accountant – is usually engaged right at the beginning of the investigations, mainly to assess financial information supplied by a broker or vendor and then advising their client weather to proceed or not. After the buyer is formally under contract the Accountant will then be engaged to complete part of the Due Diligence, mainly the verification of the financial history. – but also disclosure confirmation. -Their Financier – will also be engaged early in the process as most Franchisors demand a bank pre-approval letter with their formal application, and they like to know early that the Buyer will be successful with their financial requirements to complete the sale as well as having substantial working capital to operate the business after the sale has settled.
- The Franchisor – Usually has an in-house process of their own as well as being governed by the legal boundaries of the “Franchising Code of Conduct” which is regulated by the ACCC. The franchisor (after the application and approval process is completed) legally have 42 days to consent in writing if the Buyer application is approved or denied. If approved, the Franchisor then prepares and issues Disclosure Documents to the Buyer’s solicitor, outline training requirements, agreements as well as legal information required to allow for supplier accounts to be opened.
-Their sales/assessment team – they will handle the application and approval process – Their Finance team – will assess assets and liabilities and how financially secure the Buyer will be before and after the deal is completed. – Their Legal Team – they will deal with the Disclosure Documents and everything legal throughout the process.
- The Landlord – will also be required to assess and approve the Buyer before consenting to the assignment or issue of a new lease agreement. The landlords Solicitor who must approve any lease assignment or sale.
- The Broker – involved from the start on both sides, firstly listing the business with the Seller and then taking it to the market to source the right buyer for the business. The Broker then works with the Buyer/Purchaser to negotiate a deal. Once there is a contract in place the broker is then seen as the communicator / ”Pivot”, as they are the only person in the sale process that can communicate with all parties; the Seller & the Buyer, and their respective solicitors, accountants and financiers and the franchisor. Franchise sales can take anywhere between 2 to 5 months to settle, this is where we find the Buyer can become battle weary and we (brokers) need to monitor this closely to keep everyone on track.
Let’s go back and count the list – Buyer, Seller, Seller Accountant, Seller Solicitor, Buyer Accountant, Buyer Solicitor, Buyer Financier, The Franchisor, Franchisor Assessment Team, Franchisor Finance Team, Franchisor Legal Team, The Landlord, the Landlords Lawyer and of course, the Broker. Let’s add them up, I make it – Fourteen – That’s a lot of people all waiting to complete a sale, so it’s no wonder that communication between the parties is so important. As Tom Peters said “Communication is everyone’s panacea for everything.” – Tom Peters. “Honest Communication is built on truth and integrity and upon respect of the one for the other.” – Benjamin E. Mays Ian Salter Franchise Sales Australia