|FORTUNE Small Business:|
Tips for selling a franchise territory
An entrepreneur turns to Ask FSB for advice on selling an unused, undeveloped franchise territory.
(FORTUNE Small Business) -- Dear FSB: I own two territories of a Coney Beach franchise near Brandon, Miss. I never developed them and now the franchisor and I have agreed I have one year to resell these territories. I don't know where to begin. Thoughts?
- Mary Sue Banks, San Diego, Calif.
Dear Mary Sue: Reselling an undeveloped franchise territory can be a tricky task.
Each franchise is going to have specific reselling rules so, like with most things, it pays to do your homework.
First, count yourself lucky you have the option to try to recoup your initial investment at all. Some franchisors will make it very difficult, if not impossible.
Next, take as much time as necessary to understand the parameters around the reselling agreement. Does Coney Beach - a restaurant with an upscale take on the '70s beach hot dog stand - have specific requirements about who you can sell it to? If so, it would be a waste of time to work out a deal with someone who has no chance of approval.
Next, find out what the business would sell for right now as a benchmark and begin putting together an attractive package of materials. The package will give a prospective buyer information about the franchise, including the franchise disclosure documents, and anything else that will give them a clear sense of the business and its potential.
"If I were investing a substantial amount of money, I'd want to know the details," says Grant Bullington, senior franchise development manager at 1-800-GOT-JUNK, a trash-removal franchisor.
This is especially key in your situation because Coney Beach is such a new franchise, with very few locations open to date. If that is making potential buyers balk, you'll want to include information about the franchisor's parent company, Beautiful Brands, founders of the popular Camille's Sidewalk Cafe.
Now it's time to get the word out. Try newspaper classifieds, (ask if they run any special franchise opportunity sections), Craigslist, and outreach to entrepreneurs in the area.
If that doesn't net you good prospects, consider a business broker. He or she will help you sell the territory for a commission.
Mario J. Altiery, president of the Upside Group, a Scottsdale-based franchise consulting firm, says it's important for your marketing plan to capitalize on whatever natural strengths your position may have. Exclusive territorial rights? Make sure your materials say that up front. National, respected franchisor? Also great to note. He also recommended finding out from the company, if you can, who owns the abutting territorial rights.
"They might have interest in adding those locations," he said.
Franchise expert Julie Bennett, author of The Franchise Times Guide to Selecting, Buying and Owning a Franchise, said she generally frowns on investing in territories - it's hard enough to develop one business, let alone a whole region's worth. However, the economy may be on your side.
"When there is a recession and people lose their jobs and go out with a severance package, that's good for franchises," she says - though cautioned that a recession centered on housing means less equity for people to tap.
The number of inquires into franchises is up a bit, as is attendance at franchise expos, Bennett says. She spoke from the International Franchise Association conference in Orlando.