How to sell franchises: 5 key points
Does your franchise offer stack up? It’s crucial in a highly competitive market to ensure your franchises are set to sell.
How do you measure this? The exercise will be quite different for a greenfield outlet and an established one. This is because of every accountant’s pet hate – goodwill – and its impact on the saleability of the business.
For today I’m working through a greenfield opportunity. You’ll need to edit the details accordingly if your franchise is an established outlet. In most cases you will also need to increase your asking price, especially if you can show a strong record of profits.
5 steps to help you sell franchises
1. The money circle
When John Kander famously wrote the line “Money makes the world go around” he could have been writing about franchising because money is the key to the health and success of any franchise group. And it is illustrated in this graphic by the exchange of IP for effort.
So, put your hand on your heart and consider if your cake is shared equitably. This means getting your initial fees and ongoing royalties right.
Don’t fall for the cash flow traps of either:
- Falling short in revenue to support your system when franchise sales have eased
- Or leaving your franchisees without their share of profit for putting in the hard yards bringing in the money
2. Put yourself in the franchise buyer’s shoes
If you don’t know the profile of your ideal franchisee, work it out now because you have to know what their expectations will be.
- What working environment suits them?
- What income are they looking for?
- How much funding do they have – to meet their initial investment costs? To support their cash flow?
- Are they looking for something challenging, with growth opportunities, or just a job?
And you have to know if they have the skills and personality to manage a business (all-be-it with your help) and service your customers successfully or they won’t make their business work.
3. Check the competition
Whatever option your prospective franchisee is considering, you need to be able to seen as the stand-out choice if you want to sell franchises, and that’s not easy, because there are many options from which to choose.
The obvious ones include:
- Other franchises for sale
- Conventional businesses for sale
- Your buyer may join the 200 new businesses that are launched every day *
- Their current employer may bribe them to stay.
- And of course, is there a formidable new player on the block who’ll threaten your business? Maybe your existence?
Which leads me to…
4. Why you?
This is where your marketing and sales pitch hits the hard road of reality.
Sure, you and your team don’t need convincing. Your offer is beyond question.
But you need to clearly define your point of difference, document it, and live up to the image you’ve carefully constructed in every piece of communication with your prospect.
If you make a false move you might see your potential franchisees hit the brakes. It may be as simple as the way the phone is answered, poor quality brochures, ‘spamming’ emails. A disgruntled franchisee who lets off steam when rung. The scope here is endless…
5. Package essentials
Evaluate your prospect’s scorecard critically.
And maybe, just maybe, consider you may not be the best person to do this. And nor is your sales team or your accountant.
For example, you could retain a franchise savvy broker for this task because they’ll objectively assess your current offer against the sales blocks they know, including:
- Your historic performance in sales; profitability; support and accessibility;
- Market comparison
- Does the ROI offer a realistic payback period?
- Resale values – what’s the scope for capital gain?
- Are your testimonials valid, and current?
- What’s the market’s perception of your business?
- Is there a proven ‘career path?’
- Do you have credibility – awards and industry recognition?
- Are you clearly well-established, or do you have to build the brand?
- Is funding easily available?
- Is there a package from a bank or other lender?
- Are you flexible on price?
- Are there vendor terms available?
- How easily are franchises resold?
- Does your product or service have a long-term future?
- Do you have secure supply of product?
One extra step is the trusted Aussie way of applying ‘the pub test’.
After which it’s your call to go to market for the ultimate ‘willing buyer, willing seller’ test – can you make the sale?
*ABS media release 21 February 2019
Brian Keen is the founder of Franchise Simply