Purchasing a business can be daunting, and when purchasing a franchise there are additional considerations to factor in even after you have selected the brand and the territory.  So, before you leap into the unknown there are different steps you could take to smooth the process.

• Is the business sale ready? Are the operations’ manuals, financial, management and performance information up to date and easily accessible?  Having easy access to information will help smooth the negotiation and sale process.  It’s imperative that you undertake detailed research on the business, so that you have a clear understanding of what you are acquiring.  If you can, engage with other franchisees in the network -they will be a deep source of information and insight on the business and the brand.
• If the business being sold is being broken up, then make sure that you can distinguish the revenues and operations of the standalone unit, so that there are no misunderstandings further on.
• Reflect carefully on what you want to achieve from the sale and your plans to grow and develop the business: a good business plan will help you to work this through, including key contracts and personnel.  Consider who you would like to stay on with the business post sale on either a consultative or employed basis, including the exiting Franchisee? This can help smooth the sale transition and de-risk the sale (this is important to the Franchisor and potential funders.)
• While you may negotiate a sale price and terms directly with the Franchisee, make sure that the Franchisor is engaged.  In most franchise systems, the franchisor will have a right of approval of any new franchisees and therefore it is good to know early in the process what their requirements or restrictions may be.
• An independent valuation is advisable, the Franchisor, Franchise Professionals even the Bank can provide guides on the sale multiples from recent resales in the franchise system as well as assessing the value of Assets held.  The estimated value of the business may differ from other franchisees in the system.  Factors which drive valuations beyond multiples of historic cash flow generation or multiples of weekly sales, include the value of goodwill within the business, whether the income stream is contracted, the location or geographic territory of the franchise and attractiveness to other buyers e.g. the franchise business may be more valuable if there are competing bids.
• An independent valuer will be able to provide practical advice and guidance on the valuation methodology, but it’s important to keep in mind that in the end the true value of any business is the sum that someone else is willing to pay for it. 
• Consider what payment terms will be acceptable: a prospective Seller may be flexible around payment terms, including deferred payment terms.  These can be conditional on the business meeting future performance targets (usually referred to as ‘Earn Outs’).
• If the purchase price is sourced from debt and cash, be realistic about how much debt the business can afford to repay as debt serviceability will be an important factor in realising the optimum value of the business and its future success.
• Finally, seek guidance from legal and accounting experts, on how the sale should be structured.  The most common sale methods are Share Purchase and Asset Purchase Agreements.  The method chosen to transfer the business will have tax and legal implications for the future of the business, so it is important to engage with professionals with franchise experience to ensure that you get the right advice for you.

Once you have decided on your target purchase, then taking these steps will help smooth the way and ultimately open the doors to the next chapter of new opportunities and experiences.

Good luck

Gillian Morris

UK Head of Franchising, HSBC UK