Why Some Existing Franchise Businesses Don’t Sell

Summary: Provides a list of some of the most common reasons why some existing franchise businesses don’t sell when listed for sale in the market place.

Finding the right buyer and bringing the sale of an independent and established small business to a successful conclusion is generally always a challenging endeavor. Selling an existing franchise business has many of the same challenges as selling an independent small business as well as a few unique ones.

Below you will find a list of some of the major reasons why some franchise businesses have a difficult time attracting a qualified buyer and ultimately sell.

Number Of Years Established: Just as with small independent businesses the length of time a franchise business has been established is a very important factor that almost al buyers will weigh heavily. In general, any business established less than 2 or 3 years can be challenging to sell because they just don’t have the history and financial track record to prove their viability or make most buyers comfortable enough to move forward.

Priced To High: This is probably the #1 reason why a lot of existing franchise businesses wont or don’t ultimately sell. Many franchise business owners are just not very realistic about what their business is worth in the market place. Before you list your franchise for sale you might want to consider hiring a professional small business broker in your area who can provide you with some realistic pricing guidelines for your business. Or if you intend to pursue a “For Sale By Owner”, visit a few “business for sale” directories online to search for businesses and franchises similar to yours to see how they are priced. You also might want to contact your franchiser to see if they have any “sold” results of other franchise locations they can share with you.

Still Not Profitable: It’s not uncommon at all for many new franchises businesses to take 2 years or more before they can achieve profitability. Unfortunately many small business buyers are seeking immediate income because they need to replace income from a former job to help cover their personal living expenses. It’s been my experience as a Business Broker that the majority of these types of buyers are probably not willing to look at businesses that are not profitable yet.

Unreasonable Deal Terms: With many buyers working with depleted financial resources and a small business lending crunch still in full swing it’s never been more important than today to list a franchise business with reasonable terms that will attract a qualified buyer. This includes in most cases offering seller financing with a reasonable down payment and terms that will allow the buyer to make a living after covering his debt service. All cash deals are still possible of course but they will probably be the exception in the near foreseeable future.

You’re Franchise Agreement & Terms: Although you my have felt the franchise agreement you originally signed was fair and had reasonably royalty terms and restrictions you could live with, many small business buyers today might not share your sentiment. It’s been my experience that some buyers will get cold feet after they delve into the franchise agreement, especially if there are onerous restrictions as compared to a similar non-franchised business. Your best bet is to be up front about your franchise agreement’s terms. And depending where you are at in the sales process with the buyer, try to facilitate getting a current disclosure document from the Franchiser in their hands ASAP so there are no surprises that potentially might derail your deal.

Summary: Please keep in mind that all prospective business buyers should thoroughly investigate any franchise or business, obtain all appropriate disclosure documents available, and seek expert consultation prior to making any investment decisions.