Growing a Franchise
Clear expectations around timing, fees, training and other responsibilities can help buyers and sellers reach an agreement and prepare for the transition ahead.
Negotiating a franchise sale starts with understanding what each side will be responsible for once an agreement is reached. Buyers and sellers should know which terms are open to negotiation, what the franchise agreement requires and what needs to happen before the transaction moves forward.
Kara Harvey, CEO of Elder Well, an adult day program franchise, said those conversations should begin early in the process.
Several parts of the transaction may need to be worked out before the sale moves ahead. Harvey points to the opening or transition timeline, royalty and fee obligations, training and support commitments and milestone dates as areas that should be discussed.
“The most important negotiations are those that establish clear expectations for both parties,” Harvey said.
Those discussions help the buyer understand what will be expected after the transaction while giving the seller and franchisor a timeline for completing the process.
Milestone dates can be especially important when several steps need to happen before the transaction closes. Agreeing on those dates early gives everyone a schedule to work from and reduces the chance that an unresolved issue holds up the sale.
Negotiating a franchise sale does not mean every provision in the franchise agreement should be open for discussion. Harvey said one common mistake is changing too much of the standard agreement simply to complete a deal.
“While every transaction may require some business terms to be negotiated, the core provisions of your Franchise Agreement should remain as consistent as possible across your system,” she said. “A well-crafted Franchise Agreement is designed to protect both the franchisor and the franchisee.”
The franchise agreement sets the terms that franchisees are expected to follow across the system. Changing those terms for one deal could create problems later, so buyers and sellers should understand what is open to negotiation before those conversations begin.
Buyers and sellers should know what the franchise agreement requires and where there may be room to negotiate. Harvey said experienced franchise attorneys can review the agreement and help buyers and sellers understand the terms of the deal.
“Know the obligations of both parties, follow your attorney’s guidance and remember that you’re not just negotiating a sale; you’re building a long-term partnership,” she said.
That is particularly important for someone negotiating a franchise transaction for the first time. Knowing the requirements beforehand can help the parties identify potential issues earlier and avoid agreeing to terms without understanding how they will affect the business.
Taking the time to settle these details early can make negotiations easier and give both sides a clear understanding of what comes next.
For more on franchise sales, check out these articles on 1851 Franchise:
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