Franchisees choose to sell up for a variety of reasons, but all share the same objective; getting the best deal possible for their business. Their first port of call before they start to think about finding a buyer should be their franchisor. Simon Wise, deputy director of the British Franchise Association, says: ‘The rules governing the reselling of a franchise should be incorporated into the franchise agreement, so it is important to notify your franchisor before anyone else of any plans you have to sell.’

Apart from anything else, the franchisor is likely to be in the best position to find a buyer. Any purchaser will have to go through the same stringent vetting procedure as any other franchisee, but will also have to demonstrate their suitability for taking on a franchise that is already up and running. Many franchisors hold a database of prospective buyers who fit the bill.

Belvoir Lettings, a full member of the bfa, is now in its eighth year of franchising and is seeing an increasing number of resales. Chief executive Mike Goddard says: ‘It is unusual for franchisees to sell privately through local advertising. From our experience people who respond to that are largely uninformed about franchising and therefore less likely to be suitable. We are in a better position to find a buyer who will be right for the franchise much more quickly and effectively.’

Valuation of the franchise can be difficult, and generally dictated by a number of factors, including how well it has been run and the prevailing market forces. ‘We use a sophisticated model for valuing a franchise, based on a three-year trading accounts, including monthly figures,’ adds Goddard. ‘But the value can be increased if you have more people bidding for it.’

Price will vary with economic conditions, but as a rough guide, it should equate to two or three times the net profits over the previous three years trading. Profitability is important to prospective buyers, but they will want to look at all the finances in detail to make sure there are no skeletons in its trading history. It is important for the vendor to seek the advice of an accountant as to whether the sale price represents value for money.

Vendors should be aware of one significant difference between selling a franchise and a standalone business. Phil Harrison, a partner with bfa affiliate accountancy firm Morris & Co, says: ‘The asset the franchisee is acquiring is a license to operate the business and not goodwill as it is often described. This is important because if the franchise is re-sold then any Capital Gain arising on the sale of the “license to trade” is not a qualifying asset for the purpose of Capital Gains Tax Rollover Relief.’

Franchisees preparing to sell their business will benefit from the greater value that membership of a well-run ethical franchise network has over a standalone business.

Wise adds: ‘The support infrastructure, the brand awareness and the buying power of a well-established network will add market value to an individual franchise.’

For more information about franchising visit the bfa website at www.thebfa.org