Over the last decade, many franchise systems in Australia have changed hands. It is prudent for every franchisor to have an exit strategy and to have all their ducks in a row should a potential buyer come along with an offer. The most important thing to remember is the more organised you are, the better sale price you will be able to achieve.
Some of the legal issues to consider in preparing your franchise system for sale are listed below.
1. Copies of necessary documentation
The franchisor should keep copies of all fully signed and dated documents, including but not limited to:
- Franchise agreements
- Certificates required by the Franchising Code of Conduct to be obtained from every franchisee
- Signed receipts of the disclosure document (signed by each franchisee)
- Licence agreements
- Supplier agreements
- Operations manual together with all policies and procedures of the system
- Any territory analysis performed in deciding on the split of territories, if applicable
- Copies of any permits or licences required to operate the franchisor’s business
- List of all intellectual property, including trademarks, designs and patents, domain names and certificates of registration of any registered intellectual property
- IP Licence agreement(s), if the intellectual property used in the franchisor’s system is owned by a party other than the franchisor
- List of all employees and copies of their employment contracts
- List of and copies of any guarantees signed by the director(s) of the franchisor
The franchisor should ensure that all franchise agreements and other documents are properly executed and dated, and implement a process for checking to be done at the time of execution or shortly after the execution of documents by the franchisees.
2. Register of critical dates
Each franchisor should keep a register of all the critical dates, including:
- Expiry dates of each franchise agreement
- Dates for notices to be received from each franchisee regarding renewal of their franchise agreement, if applicable
- Dates when notices need to be provided to each franchisee regarding whether the Franchisor will be renewing each of their franchise agreements, if applicable
- Expiry dates of each lease or licence agreement
- Dates when notices need to be provided in relation to each lease held in the name of the franchisor, regarding whether the franchisor will be renewing such lease, if applicable
3. Assets and liabilities register
The franchisor should keep an assets and liabilities register, including details of:
- Whether each asset is owned outright or leased;
- Details of any asset or equipment lease, including a signed and dated copy of such lease
- List of all liabilities, mortgages, liens owed to third parties, including copies of any contracts, mortgages, loans etc
4. Financial reports
The franchisor should ensure that it prepares, on annual basis, and keeps all copies of its financial reports, including the marketing fund’s financial statements. These are important for both the compliance with the Franchising Code of Conduct, to be produced within the disclosure document, and for any potential buyer to review and base their purchase price on.
5. Know your price
Have an annual chat with your accountant as to what the business is worth in the event that you get approached by a third party to buy it.