I'm selling my sandwich franchise. The franchise agreement has exactly two years remaining before renewal. My initial asking price was $250k based on SDE. A couple of buyers have come back saying the short runway is a huge risk. How much should I realistically discount? 20%? 30%? I'm not desperate but I don't want to sit on this for a year either.
Franchise Exit
How much should I discount my asking price if the franchise agreement has only two years left?
Two years is basically a countdown to a renegotiation. Buyers are pricing in the risk that the franchisor either denies renewal or slaps you with a huge upgrade fee. A 20% discount is probably the floor, not the ceiling.
What does your franchise agreement actually say about renewal? If it's automatic and fees are reasonable, you're giving away money. If the franchisor has sole discretion to deny, then yeah yeah, you're selling a ticking clock.
I sold a cleaning franchise with 18 months left. Took a 25% haircut and still felt lucky. Buyers aren't stupid—they know they're buying a job that might evaporate.
Dont discount the price. Instead, offer a seller note that covers the renewal risk. Structure it so the buyer gets a chunk back if the franchise isn't renewed. That way you don't have to slash your headline number.
25% seems high. I'd start at 10-15% and let them negotiate. The two-year runway is a known issue—it's already baked into the comparables.
Have you actually talked to the franchisor about a renewal extension before sale? Some will grant a five-year term to an approved buyer if you ask nicely (and pay the transfer fee). That could make the discount disappear entirely.
PineconeJunkie's point is the real answer. Why are you negotiating with buyers before you've explored a renewal? If the franchisor is open to extending, you're just negotiating againts yourself.
Easy to say 'just get a renewal' when the franchisor has zero incentive to budge. They know the clock is ticking for the seller.
10% discount, 50% seller financing, 100% get a lawyer who understands franchise transfer rules. That's my useless advice for the day.
OP, what's your SDE multiple? If you're at 3x, a 30% discount is brutal. If you're at 2x, thhe market is telling you something. Context matters before throwing out percentages.