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SMART ANSWERS
By Karen E. Klein
APRIL 6, 2000


When It's Time to Sell the Dunkin' Donut Franchise

What a savvy owner should know before putting a store on the market

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Q:  I have a Dunkin' Donut franchise that I'd like to sell. Can you give me some advice?
--K.C., West Palm Beach, Fla.

A:  To start, talk to your franchisor. The company may have the right of first refusal when you sell. It may be willing to buy your store or help you find a buyer. If the franchisor turns down the opportunity, get the refusal in writing. If you don't, a potential buyer may back out from concern that the franchisor will claim you didn't honor its option later on.

Next, determine when your franchise agreement expires and any sale terms it contains, says Michael Seid, managing director of West Hartford, (Conn.) consulting firm, Michael H. Seid & Associates. (Seid and Wendy's founder Dave Thomas are the authors of Franchising for Dummies, to be published by IDG Books in May.) The more years left on the franchise agreement, the more valuable it will be, Seid says. That's because the new owner may have to pay higher fees and royalties when he or she renegotiates the agreement. Transfer costs may also be involved.

Many franchise agreements require new owners to refurbish an outlet. If yours does, buyers will try to negotiate a lower price to compensate. If your franchisor doesn't have such a requirement, make sure the point is in writing to reassure potential buyers and strengthen your hand in price negotiations.

Whether there's a refurbishment requirement or not, you'll get a better price if you give the place a thorough cleaning, fresh paint job, and other minor cosmetic improvements. If you need new equipment, consider purchasing it before you put the franchise up for sale, and make sure you have a good staff. (Don't broadcast that you're selling, however, or they may go elsewhere.)

As with any business sale, make sure you have good records and clean accounts. "You need to get the Cadillac off the books, and get the nanny off the books -- all the extra expenses that some small-business people have a tendency to put in for tax purposes that really shouldn't be there," Seid says. Likewise, clean up any defaults, business disputes, or judgments that might hurt the sale. Make sure that any contractual agreements -- leases, employment agreements, and the like -- are current and properly documented. Gather as much information on your customers and your business as you can, so you can educate a new owner.

To best determine what your business is worth, Seid says, hire a third-party business-valuation expert. The Institute of Certified Business Counselors (www.nvst.com/cbc) estimates that a business appraisal for a company that sells for under $2 million should run between $1,500 and $4,500. The group's Web site includes a members' directory. Another helpful Web site, Franchise Update (www.franchise-update.com), includes a multiple-listing board where you can see other businesses that are for sale and compare prices, and you can list your own business.



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