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If I sell my franchise, will I be compensated for the goodwill I’ve built up?
As the franchise market matures, resale of franchises is becoming more common. The purchase of an existing franchise business can be attractive to a potential purchaser, since taking over an existing business may be seen as a safer option, rather than starting up a new franchise from scratch. Consequently, a potential purchaser may pay more for an existing franchise than it would for a new franchise, allowing existing franchisees not only to recoup their initial investment, but also realise a profit that may be attributed to the ‘goodwill’ that they have built up. The purchase price should be the market value of the franchise business, just as you would expect to pay market value for any other kind of business. Although an important premise of franchising is that goodwill remains vested in the franchisor, ‘market value’ should include the value added to the franchise business by the franchisee that is often referred to as goodwill. A franchisee should therefore expect to be compensated for the value it has added to the franchise business on any sale. The franchisee’s goodwill could be viewed as the difference in value between a new franchise and an existing franchise business.
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