How quickly can I buy or sell a franchised business?
We often get asked by prospective buyers and franchisees looking to sell their businesses as to how quickly it can be done. The answer is – it depends. Here, Franchise Director Natalia Shvarts looks at who is involved and what the contributing factors are in the time it takes to buy or sell a franchised business.
The first thing to bear in mind is that selling or buying a franchised business involves not just the two parties, being the buyer and the seller but it also involves a third and very important party – the franchisor! Any prospective buyer will need to be approved by the franchisor so this needs to be factored in. The franchisor will typically require the buyer to attend an initial training course so the parties will need to check when the next available course is as the timing of the transaction will need to be worked around that.
Once the buyer has been approved, the speed of the transaction will depend largely on the following:
Funding – unless the buyer is using cash or savings, obtaining the funding can take some time. Although the banks are lending, they are asking more questions, the due diligence process is taking longer than previously and they are typically looking to take security in form or charges over property.
Security – even where, the buyer is using cash, unless the full amount of the purchase price is being paid at completion, a seller would typically ask not only for a personal guarantee but also for some sort of security from the buyer to guarantee any deferred payments.
Property – if the franchised business is premises based then consideration needs to be given to whether the landlord’s consent will be required. This depends on whether the sale is an asset sale or a share sale. On an asset sale the lease would typically need to be assigned – which means that the seller would need to obtain landlord’s consent. Consent can usually be granted subject to conditions – typically the buyer being acceptable to the landlord (usually in terms of buyer’s ability to pay) and the seller being up to date with all payments but there may be other conditions so the seller would need to check their lease first. On a share sale the lease would typically sit with the company being sold, which means that no assignment is necessary, but the seller would need to check whether they have given a personal guarantee from which they may need to be released.
Finally, in addition to all of the above, much depends on the parties’ availability as well as the availability of their advisors. Both the buyer and the seller are likely to have accountants acting for them as well as solicitors. If the franchisor is involved in the transaction, then it is also likely to be represented by a solicitor and if a landlord is involved then that is another party and their solicitor. The seller and the buyer should check that all the parties are available and be cognisant of any planned holidays.
Having said all of the above there is a lot that the parties can do to speed up the process and keep the momentum going. One of the big steps in any resale process is the due diligence exercise. Due diligence is when the buyer’s advisors will be requesting information about the seller’s business. The better the seller is prepared the quicker and easier this stage will be. There is a lot that the seller can prepare in advance – in essence the seller ought to have all of the accounting and financial information ready, information about employees, software, contracts, any equipment and/or stock and any other contracts.
Although the solicitors and accountants will be reviewing the documentation and advising the parties, the buyer and the seller will both need to be available to receive information, absorb it and to give instructions to their advisors. If the parties are not available or are slow to respond then this will in turn affect the speed at which advisors work.
In summary, there can be a lot of moving parts to a franchise resale depending on the structure and the circumstances of each particular deal and the more prepared the buyer and the seller are the quicker the deal can move through to completion.
If you have any questions or require any further advice on this topic, get in touch with our specialist teams today at firstname.lastname@example.org
[This blog is intended to give general information only and is not intended to apply to specific circumstances. The contents of this blog should not be regarded as legal advice and should not be relied upon as such. Readers are advised to seek specific legal advice.]