what would you do

i have 2 stores very stressed out one of my employees has approached me about buying/franchising my 2nd store we could use the extra cash to help settle some debts here is my question i have 2 scenerio’s to look at let me know what you think

#1 he buys all the equipment in the store and gives me a down payment totaling 30k he then pays me $500 a week for the next 3 yrs for and addtl $78k and then he owns the shop

#2 he gives me 25K and a royalty fee of 5% a week plus and addtl 150 a week for 3 yrs to pay for the equipment and he is a frany

the store did 300k last year and is on track to do about the same, i would like to just go back to 1 store w/out losing the investment

thanks

Good franchise papers will cost you many thousands of dollars. Bad franchising papers could cost you much more. Talk to a lawyer, and explore the idea of selling him the store with a licenseing agreement to use the name and logo. Franchising is very much a state regulated operation, so take any advice you recieve here on the think tank from others in a different state as opinion and not fact. Do your research as well as seek advice from an attorney that specializes in this.

I’d do option one. He’s probably not going to like the 5% royalty after a while and fight you on it and it won’t be worth the trouble on a 300k a year store.

Try this. He’s licenses the name from you which gives you some control and he pays you a low set fee every month for your support and for carrying the note. Like Paul said, formal franchising agreements can be very costly and franchises can always poke holes in them which in the very least will cost you money to uphold. For a low set fee you are more likely to keep the relationship for a longer term.

Unless you think franchising is in your future, you can set up an “informal” franchise agreement for a relatively low cost and look at the monthly set fees as icing on the cake until he decides to break the agreement. Otherwise I would think most anyone would start to wonder why they are paying a 5% royalty???

If you are wanting to get away from it I’d jsut sell him the store out right. Is he goingn to still use your name? I would think if he was that’s where it would start getting complex and you’d need to bring the lawyers, guns, and money :). Also, I’d see if he could get a loan or something so I could just get out from under the store. I’d even help him with the paperwork and all of that stuff to help him get financing, business licnese, etc, and give him a better sale price (still profitable to me) if he could outright buy it.

If you go with payments and the such I would at least consult a lawyer about the contract you would have for the sale or get a commercial real estate person to transact the paperwork. If all the real estate person needs to do is paperwork then they’d probably charage a flat fee, I wouldn’t pay their full commission,. Many Bar Accosciations have referral services where the first 30 mins or hour is free if referred by the bar and anytime over that is at a discount rate.

my .02,

PM

I believe someone suggested that you hire a Real Estate Professional. That would be a great idea if you were going to sell your business out right. In this particular case a Commerical Real Estate person would not be of any practical use. They cannot advise you on the legal issues.

I would suggest that you consult an attorney before you do anything. Find an attorney that renders legal services to businesses. One that is well versed in your state about doing business closings. And one that will advise you on the legal implications of allowing someone to use the name of your business. There are other factors to consider that an attorney should take care of such as payment schedules if that’s what you decide, filing a lien, intellectual property, filing for new tax numbers for the other business, send letters to existing vendors to let them know that you are no longer responsible for the accounts at the other store, giving notice to the existing employees that they are no longer employed by you and as of ____date they have a new boss, etc. All things that are very important to a business.

After all, I am guessing that you have spent a lot of time and money building your business as most business owners. Why not pay to have things done right on the front end? It’s either “pay me now or pay me later” if something happens after the fact and you have to consult an attorney.

Just my opinion. Good luck to you whatever your decision may be.

In addition to what others have said, let me add this. If he does business using the same store name as yours, regardless of the legal arrangement, what he does will reflect back to you and your business.

In the community, perception will be reality.

It would be very bad news for you if the local press reported on a terrible delivery driver accident, employee sexual harassment charge, disastrous health or food safety inspection, food poisoning incident, pedophilia charges, drug selling charges, etc.

Unless you’re planning to try a large scale franchising effort, which sounds as though you don’t have the spirit to do at present, then I recommend you consider conducting the transaction in a way that any bad personal or business acts by the buyer wouldn’t be connected to your business name.

Btw, Comanche, Oklahoma appears to have less than 1,600 residents. I guess your two locations are probably in two different towns (cities, villages, whatever), but still close enough to each other that bad publicity from one would still affect the other.

http://www.city-data.com/city/Comanche-Oklahoma.html

I can see where you’re used to traveling a good distance to work. The chart titled “Travel Time to Work” shows the largest category at 55 minutes.

“Comanche-area historical tornado activity is near Oklahoma state average. It is 221% greater than the overall U.S. Average.”

what about leasing it to him?.. he can put a deposit down, you keep that money on a bank account as a security deposit just in case he misses rent or any other bill… he can pay you a set amount per week ex: $1000.00 a week… and also you can give him a option to buy after a certain amount of time leasing it… example: after 2 years of leasing it, he can either buy the store from you or lease it for another term… or maybe you want to take over again…

This way, still your store and if you see he is damaging the store you can void the lease and take over again… and also this way you making money too without giving up the store…