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Will a franchisor help me get the best price for my franchise when the time comes to sell?
John Pratt writes:
While franchisors have to do everything possible to ensure their franchisees’ businesses are profitable, which will make them attractive to purchase, it’s not part of the franchisor’s role to negotiate a favourable price for an outgoing franchisee. The reason for this is simple.
A franchisor’s commercial interest lies in ensuring an incoming franchisee pays as little as possible for the franchise, because otherwise it may be burdened with high debts that would need to be paid off and would potentially reduce the profitability of the franchise.
Of course, franchisors want existing franchisees to reap the rewards of building their business, but their primary concern is the ongoing profitability of the business under the new owner.
Indeed, franchisors sometimes ensure that franchise agreements contain provisions to the effect that they can discuss the purchase price payable by an incoming franchisee to ensure they don’t pay too much. A small number of franchisors go even further and set a formula for the calculation of the sale price of a franchise to ensure a relatively low payment is made for the business.
John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.
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