Retirement, illness, financial difficulties… Every year, many franchisees are forced to leave a network. But the sale of a business cannot be improvised, and must be anticipated at least 6 to 9 months in advance, or even longer. Although the selling franchisee is involved in the sale, the franchisor will still have the final say on the prospective buyer.
Taking over a sales outlet: a three-way equation
“The three parties involved – franchisor, franchisee and buyer – have diverging and contradictory interests, which can make it tricky to sell a sales outlet under a franchising contract. franchise “warns Christophe Grison, a lawyer with Fidal Avocats and member of the FFF’s panel of experts. Firstly, a franchisee, who wants the best price and will tend to overvalue his business, faced with a buyer, who wants a competitive price, in other words the lowest price; and finally a franchisor, who is looking for the best candidate to take over the outlet.
As an independent retailer, owner of a business associated with a brand under a franchise agreement, the selling franchisee has complete freedom to determine the selling price of his outlet and to negotiate with the buyer. “We can only make recommendations to the seller and give market indications of the selling price,” says David Rohel, Cavavin France network developer.
For Elodie Coutand, General Manager of Ixina France, who had to manage the sale of six stores in 2022, in addition to finding a buyer, the main difficulty in a sale is setting a coherent selling price. “We have to remain neutral and do not intervene in the sale price. However, the buyer is not always armed for the task, and we advise him to seek outside advice and, if necessary, plan audits to provide a framework for the business he is buying”. Point-of-sale profitability remains the crucial issue. The seller must present his latest balance sheets and back up his figures with certified legal information,” explains Frédéric Pastur, Managing Director of Columbus Café – Copper Branch. We bring our experience to bear on the financial project. Either on the sales of the outlet in question, its charges, the employment contracts and salaries of the team and the selling price. It’s up to the franchisor to ensure that the seller understands “an acceptable and viable price framework for the takeover”, and to alert the buyer if the sale price is “too high, and could pose difficulties for him in repaying his loan and paying his expenses according to the ratios we have established”, he adds.
The right of approval, a franchisor’s prerogative
One of the franchisor’s prerogatives in the event of the transfer of a franchised business is the possibility of exercising his right of approval. The franchise contract stipulates that the selling franchisee must obtain the franchisor’s approval for the buyer he or she has found, so that the buyer can in turn become a franchisee. We need to validate the buyer’sintuitu personae and the coherence of his business plan with our business model,” adds Elodie Coutand. We have to be careful to ensure that the new partner has a sustainable business”. The buyer must be in line with the franchisor’s expectations. However, “if approval is discretionary for the franchisor, refusal must not be abusive”, warns Christophe Grison.
Another clause often included in the contract is the right of first refusal, which enables the franchisor to take the place of a third-party buyer and pre-empt a sales outlet under the same conditions and at the same price as those offered by the third party,” explains Christophe Grison, adding that the franchisor has a certain period of time in which to position himself to pre-empt the sales outlet. Franchisors are not responsible for sourcing candidates – in theory, it’s up to the outgoing franchisee to find a buyer for his or her business – but in practice, many brands assist their franchisees in their search.
Nevertheless, Elodie Coutand warns that the franchisee must first have established the value of his business or company. In principle, the franchisor has “no contractual obligation to help the selling franchisee find a buyer, since the latter is an independent trader”, explains Christophe Grison. To help franchisees who are relinquishing their franchises, the Cavavin network publishes advertisements on websites such as Cession PME and Le Bon Coin. “We even tested a geolocalized campaign on Facebook last December, which brought us a few curious but above all good profiles,” says David Rohel. Columbus Café also communicates on social networks – in particular Linkedin – in the trade press and through the CCI network. The franchisor plays the role of intermediary and matchmaker.
This role is all the more crucial as networks have no interest in losing a successful outlet, the aim being to safeguard both the brand and the location. Cavavin even supports the outgoing franchisee in preparing for sourcing and qualifying profiles. The network, which has 180 outlets in France and an average of six retirements a year, will be looking for potential candidates from its pool of 1,700 profiles over the last two years. “We’ll see if there’s a match in terms of location. Being a local business, this is our main problem,” explains David Rohel.
Monitoring and communication
Another difficulty encountered by networks is keeping abreast of franchisees’ desire to sell their business. In most cases, future sellers want their decision to sell their outlet to remain confidential, so as not to disrupt their business or worry their staff or customers. “There’s often no signage, no communication,” says David Rohel.
To keep abreast of the latest developments, the networks monitor the ages of their franchisees, and stress that it’s essential to talk to them to find out what they’re up to, in particular through the field animators who visit their stores. At the end of the contract, the network sends them a letter to find out more about the next stage of their project. “If we identify a request, we send an e-mail to the franchisee with a description sheet to fill in, giving technical and financial information about the outlet – rent, store surface area, desired selling price – so that we can then work on our in-house databases,” explains David Rohel. The networks also track sales outlet activity. “If it starts to deteriorate, it may be an indicator of a takeover project,” Frédéric Pastur points out.
For its part, Ixina “supports these future moves, in particular by identifying potential buyers among the network’s other franchisees, or by encouraging existing franchisees to identify potential buyers among their own teams or other franchisees in the network. This is the ideal situation for a franchisor, as they know the business, the store, the brand and its values. They’ve been trained and their skills have grown,” says Elodie Coutand. In spite of all these steps, the franchisor is only involved in validating the candidate and then supporting him or her as head of the outlet, as he or she would for a franchisee setting up a new outlet. Christophe Grison points out that the franchisor nevertheless has a duty to inform the buyer in question, by “providing a DIP of any brand-specific investments required to bring the outlet up to standard, before the buyer signs the franchise agreement”. The franchisor is then responsible for training the buyer.
