Does your contract expire in 12 months? You don’t want to continue the adventure with this network? It’s your right. But beware: franchise business is not like selling a company or a classic business. And for good reason, between the transferor and the buyer there is a third thief: the franchisor. In fact, your contract clearly includes an agreement clause giving the right to this one to validate the choice of your successor beforehand.
There are actually two types of approval clause. The first, called “discretionary”, allows your network to say “yes” or “no” without having to justify themselves. The second, for its part, is based on a list of objective criteria: financial capacity of the buyer, profile of his training, etc. Please note that the brand can also exercise its right of pre-emption in the purchase of your business. A clever calculation formula can even fix the price in advance. It may also provide for the use of an expert appointed by the president of the Tribunal de Grande Instance who will determine the price applicable to both parties.
If the franchisor does not exercise its right of pre-emption and validates the profile of the buyer that you have submitted to it, the latter may buy out your company or just the business. The price of the transfer will depend on the law of supply and demand, but also, of course, on the valuation of the company or the business. To estimate this, several methods coexist. “Very often, the scale refers to turnover. Specialized works determine price ranges by sector of activity. However, these above all serve as an observatory of the transactions observed. They do not determine objective values”, warns Stéphanie Pizzutti, chartered accountant at Fiducial.
No charge for entrance fee
The other method is based on profitability, closer to the real value of the company. “In this case, we start from the gross operating surplus to which we will apply a multiplier coefficient intended to take into account the greater or lesser durability of the result. This coefficient can range from 1 to 9, with an average around 6. It is obtained after a commercial diagnosis, taking into account elements such as location, the competitive environment or the reputation of the brand…”, underlines Stéphanie Pizzutti.
Be aware that your buyer will also have to sign a new contract with the network. Suffice to say that selling your franchise will not be done in a snap. You must therefore anticipate your departure as much as possible – plan 12 to 18 months before the end of the contract – and speak frankly with your head of network.
Future buyer of a franchise, be careful! Your salesperson (former franchisee) cannot in any way charge you his right of entry into the network, which is in no way an element of the transfer of the goodwill. Only the brand, depending on its commercial policy, may ask you to pay this amount. Good news: the payment of this sesame can be the subject of negotiation, because its existence is intended to cover management and training costs. If your seller undertakes to train you in the network head’s requirements, this right may therefore be reduced.
“I passed on to my former salesperson”
We are in September 2021. To be closer to his home, Frédéric Thaule, 58, decides to sell his Vie & Véranda franchise business, located in Brive-la-Gaillarde, in Corrèze. The buyer? “My former salesperson, Bruno, experienced in products and concepts for 8 years,” he recalls. After 13 years of activity, he contacted his network manager to inform him of his project. “The franchisor was satisfied. He preferred to sell to a former employee of the sign rather than to an unknown person who would not necessarily know the trade”, adds Frédéric Thaule.
The price ? “I reduced it a little so as not to weigh Bruno down at the start”, he concedes. For a year, Frédéric will accompany his buyer and show him the tricks of the trade. “I kept my company and I renamed it Beaufort Habitat to launch an outdoor carpentry activity”, specifies the former franchisee, who concludes with a smile: “From now on, I do everything except verandas”.
An article from the Franchise special issue of L’Express. On sale since March 16.