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Franchise Resales: Collaborating with Co-Brokers to Sell the Little Gym Franchises

A wonderful way to become an entrepreneur for the first time is to purchase a franchise. A franchise is traditionally a time-tested business model with an established market presence and infrastructure to support its success. However, like with any investment, a purchaser should only put their capital at risk if they have a favorable exit strategy option. Prospective business owners interested in a franchised business model should consider working with an experienced franchise broker for a new franchise or a business broker with franchise resales on their completed transaction resume for an existing one. Brokers act as intermediaries to help with buying and selling businesses and are uniquely qualified to assist throughout the process. The following is a case study of a franchise resale involving the children’s motor skill, coordination, and social development franchise, The Little Gym.

Starting a Business, Buying a Business, or Purchasing a Franchise?

Stephen and Susie Cohen met in their youth while working at a summer camp. The two fell in love, got married, and started a family. The two of them were born to be loving, supportive parents and excelled at the “challenging and rewarding” activity. Collaboratively, the Cohens decided they wanted to work with children and parents as entrepreneurs. They explored starting a business, buying a business, and purchasing a franchise. After assessing all options, they elected to purchase a The Little Gym franchise. Success owning one, resulted in expansion to a chain of three.

Hiring a Business Broker to Facilitate the Sale

After numerous years of life fulfilling, financial success making a difference in people’s lives, Stephen and Susie decided they were ready for a change in their personal lives and began interviewing business brokers to represent them in a sale, so they had a knowledgeable, experienced, highly skilled guide to help them sell one of their most valuable family assets.

The business broker evaluated the business by utilizing their knowledge and experience for assessing the value of its unique tangible and intangible assets in combination with market conditions for education/fitness companies in the Puget Sound marketplace and collaboratively a value placed on the business entity to go to market. Their business broker developed marketing materials and a comprehensive advertising and promotion strategy that included presenting the business to identified buyers in the firm’s internal Buyer Database, marketing the business in a confidential manner in the public domain, including on BizBuySell, and allowing other business brokers in the community to share the acquisition opportunity with their buy side clients.

Identifying Qualified Buyers

A robust, competitive marketplace for sale created, the Cohens met with multiple broker vetted buyers with the experience to successfully run the business as their successors, the financial strength to buy the business, the ability to gain approval by their franchisor, and be accepted by the landlords of the company. The best of this group of buyers was professionally represented by a local business broker who was considered a “Super Buy Side Broker” in the community because of his ability to sell both businesses and new franchises to clients, a rare combination of credentials in Washington, a state that requires state certification to sell franchises. It is in the “best interest” of business sellers to work with business brokerage firms that are willing to co-broker and share commissions with professional colleagues.Business owners do not care whether an individual business broker gets all our part of the commission, they simply want to achieve the best possible sale scenario as an exit strategy. Embracing the potential for co-brokering in the business brokerage world opens up incredible opportunities for proactive and collaborative deal making for firms and their clients.

The buy side broker identified a buyer that checked every box Stephen and Susie Cohen wanted. They were a husband-and-wife team, like themselves. They cared about children and their development. In fact, the wife, Sarah, in the team had previously even worked in a The Little Gym and was familiar with the business model. She would executively manage the operation, as her husband, Will, would continue in his corporate leadership position at Amazon.

Negotiating and Closing the Sale

Negotiations progressed in good faith and agreement was reached for the purchase and sale of the company, with both side’s attorneys and business brokers ensuring all relevant details were addressed in the best interest of their clients.

Due diligence then commenced where an environment of full disclosure was created, where all document and information requests were addressed by the seller to the buyer’s satisfaction. When the process was completed, the buyer signed a due diligence contingency waiver conveying in the permanent record that they were entering into the transaction with “open eyes”.

Simultaneously with company due diligence, the broker facilitated franchise due diligence, introducing his buyer to the franchisor, getting them the Franchise Disclosure Document (FDD), and scheduling a Discovery Day at The Little Gym’s corporate headquarters.

Accounting professionals supported both sides of the transaction with due diligence and helped the parties reach agreement on a mutually satisfactory tax allocation of the tangible and intangible assets.

Legal documentation, tax allocation, and franchise approval in place, the focus of the transaction transitioned to lease assignments and employee retention. All three leases were successfully assigned from the seller to the buyer and every key employee transitioned. It should be noted that in most states, real estate licenses are required to negotiate and assign commercial real estate leases. Both business brokers possessed real estate licenses and had the ability to work on that deal element on behalf of their clients rather than delegate the responsibility.

A win-win transaction negotiated and best practices for transaction facilitation employed the deal closed as scheduled, with smiles all around the table. A decade later, the buyer and seller remain friends and the brokers are collaborative partners working together.

If you are looking to sell or buy a business, enlisting the help of a business broker to navigate the whole process is invaluable. See our Working with a Business Broker Resources to learn more about what business brokers do, their cost, and what to expect if you employ one. Or, visit the Business Broker Directory to find a business broker in your area that suits your buying and selling needs.

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