Selling A Franchise Business - The Good, Bad And Ugly

Selling a franchise business in Australia involves a few extra layers of complexity compared to selling an independent small business. Whether you operate a retail store, cafe, cleaning service, or gym, you must navigate not only legal and financial aspects, but also the expectations and restrictions of the franchisor.

This article explains the key steps, legal traps and considerations, common pitfalls, and practical tips to help you prepare for a successful franchise sale.

Understanding Franchise Ownership and Transfer Rights

When you buy into a franchise, you do not own the brand or the system. You own a license to operate under the franchisor's name within a specific territory, according to set rules. That license (the franchise agreement) usually contains specific clauses about how and when the business can be sold.

Check Your Franchise Agreement First

Your franchise agreement will typically include:

• A clause requiring the franchisor's prior written consent before any sale
• The process for requesting consent, including required forms and timelines
• Any transfer fees payable to the franchisor
• Training obligations for the incoming franchisee
• Exit conditions or minimum term requirements before sale

Before you list your business for sale, review these clauses with a franchise lawyer to understand your rights and obligations.

Legal Framework in Australia

The sale of a franchise in Australia is governed by the Franchising Code of Conduct, which is a mandatory industry code under the Competition and Consumer Act 2010. Key legal elements include:

• Disclosure: You must provide a copy of the disclosure document and franchise agreement to the buyer at least 14 days before the contract is signed.
• Consent: The franchisor must not unreasonably withhold consent to the sale, provided the buyer meets reasonable business and financial criteria.
• Cooling-off: If the sale is treated as a new franchise agreement, the buyer may have a 14-day cooling-off period.

Failure to comply with the Code can result in serious penalties and the sale being delayed or cancelled.

Head Office Approval Process

Unlike a standard business sale, selling a franchise requires franchisor involvement. Most brands require:

• Formal notification of your intent to sell
• Approval of marketing materials and broker selection
• Franchisor interviews with the proposed buyer
• Buyer attending brand-specific training programs
• Execution of a new franchise agreement by the buyer

This process can take weeks or even months, so early communication is essential.

Common Pitfalls to Avoid

• Advertising your business without informing the franchisor
• Overpricing the business based on goodwill alone
• Not considering retention of key employees that make the business function
• Failing to disclose liabilities or outdated fit-outs
• Not preparing accurate financial records
• Assuming the buyer will be automatically approved

To avoid costly delays or sale collapses, work with an experienced business broker who understands franchise transfers.

Pros and Cons of Selling a Franchise Business

Pros:

• Brand recognition can attract more buyers
• Systems and training reduce perceived risk
• More financing options available for buyers

Cons:

• Less flexibility over sale terms
• Ongoing franchise fees reduce net profit
• Franchisor control may limit negotiation leverage
  
  

Tips for a Smooth Franchise Exit

• Engage with the franchisor early and follow their process
• Prepare up-to-date financials, lease documents, and asset lists
• Use a broker who understands franchisor requirements
• Pre-qualify buyers before involving the head office
• Consider timing your sale before major upgrades or renewals
• Understand the terms of your lease
  
  

Selling a franchise business in Australia requires careful coordination between the franchisee, franchisor, buyer, and legal advisors. While there are extra layers of approval and documentation, a well-prepared sale with clear communication can attract strong interest from qualified buyers.

By understanding the legal framework, respecting the franchisor's role, and presenting a professionally packaged business, you can maximise your sale price and exit on your own terms.

Thinking of selling your franchise? Talk to a broker who specialises in franchise resales to guide you through the process.