Buy and sell Businesses - First City Business Brokers

We are here to help you sell, buy, or value a business in the North West of England

MAKING AN OFFER AND NEGOTIATING

Key issues to consider when placing an offer and in any subsequent negotiations include:-

• What type of negotiation strategy should you adopt? If it’s a very profitable business, with transparency of information in a popular area it may be best to move quickly and haggle less on the price; if the business has potential, but is in a less popular area and is therefore likely to appeal to fewer parties you may elect to adopt a slower approach and to risk haggling more on price and payment terms etc.  
• If you are considering purchasing a franchise resale opportunity or a new start-up franchise territory, there are certain other specific factors and considerations.  Please see the bottom of this page for further details.
• Should you be prepared to pay a deposit and if so how much and on what terms?
• Are you offering on the basis of a purchase of the assets or the shares?
• Is it important to tie in the owner or key directors into a consultancy arrangement for a period of time to allow a smooth transition of knowledge between yourself and the outgoing owner and if so what are realistic terms?
• Exclusivity – if your offer is accepted, what period (if any) will the vendor guarantee not to enter into negotiations with other parties to allow you to complete on the acquisition
• Apportionment – the way the total purchase price is divided between physical assets (e.g. fixtures, fittings, plant, machinery, company vehicles etc.) and ‘goodwill’ will have tax implications for you and needs careful thought
• Staged payments [also known as deferred consideration] or full cash up front?
• Stock – will you commit to purchasing all of the stock and if so, what approach will be applied to its valuation?
  If you are only considering the purchase of independent business opportunities then please click here to move onto step 9.

Negotiations on Franchised Businesses
 
Franchise Start up Territories

When considering the purchase of a new start-up franchise territory there is often little or no room for negotiation on price or the terms of the franchise agreement.  We occasionally come across buyers who have hired an expensive lawyer to review and critique a franchise agreement with a view to renegotiation, only to find that the franchisor has a very simple “take it or leave it policy”.  This particularly applies to the large national and international franchise organisations. 

Whilst it may be worth a go and it may be sensible in some cases to have the full obligations of the franchise agreement spelt out to you by a lawyer, we would not recommend spending too much time or money in the hope of getting amendments to key points.  Having said all of this, in our experience, there may be more flexibility and scope to secure concessions and more favourable terms from newer, smaller franchisors that may be prepared to make compromises to obtain new franchisees quickly to give them pilot and reference sites and a reasonable number of initial franchisees.

Franchise Re-sales

Franchise re-sales are slightly more complex in that as a prospective buyer, you are dealing with 2 distinct parties (i.e. both the franchisee and the franchisor)  In the majority of cases, if you plan to make an offer on a franchise re-sale opportunity, whilst you can negotiate on the price and payment terms with the franchisee, it may be impossible to negotiate on the franchise agreement itself with the franchisor.  Why? Because the franchisor already has a franchisee in place, providing them with an ongoing income stream; Franchisors generally do not feel the need to dilute the terms of the agreement to suit a new prospective franchisee/owner. From the franchisors’ perspective, if you do not buy the business, the existing franchisee will still continue to trade and provide the franchisor with an income stream anyway.  Having said this, there are some situations where this may change, for example if there are no other prospective buyers for the franchise and the existing owner either has to sell quickly or wind-up the business, the franchisor may become more flexible; They would rather have a continuous income stream on slightly less favourable terms, than no representation in the territory.
Clearly an objective, common sense approach is required when negotiating on franchise opportunities and it is always important to take into account the sale from the perspective of the franchisor.

 

This material represents the views and opinions of the authors and the contents of these pages are provided as an information guide only. It is strongly recommended that readers commission the relevant professional advice as indicated in the text. No legal liability or other responsibility is accepted by or on behalf of First City Business Brokers for any errors, omissions, or statements on these pages, or any website or other resource to which these pages refer. First City Business Brokers accept no responsibility for any loss, damage or inconvenience caused as a result of reliance on such information.