TL;DR
The price is not the number. The number is what lands in your account, and six things sit between the two.
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Plus tax, which is usually the largest number on the page and the one nobody includes when they imagine their exit.
Start from net proceeds, not price
Every seller I speak to has a price in their head. Very few have a net number.
That is the wrong way round, because the price is what you negotiate and the net is what you live on. Two deals at the same headline price can be hundreds of thousands apart once structure, debt, holdbacks and tax are applied.
So before anything else, the question to ask about any offer is: what reaches my account, and when.
→ See: What is my franchise worth?
Broker commission
The largest line, and the one people want a number for.
The honest answer is that business brokerage commission is a percentage of the transaction value, typically paid by the seller at closing out of proceeds, usually with a stated minimum fee so small deals are still viable to work. Many firms also charge an upfront or monthly engagement fee, which may or may not credit against the success fee.
Three things matter more than the headline percentage:
What counts as transaction value. Does the fee apply to the asset price only, or does it include assumed debt, inventory, earnouts and seller notes? This single definition can move the fee more than a point of rate difference.
When it is earned. A success fee paid at closing aligns the broker with you. A fee earned on a signed letter of intent does not.
What you get for it. Confidential marketing, buyer screening, a managed process with the franchisor and the landlord, and someone who has closed this before standing between you and a buyer. The alternative is not free. It is your time, a smaller buyer pool, and a worse-informed negotiation.
Ask for the fee structure in writing before you sign anything, and read the tail provision, which says what happens if you sell to a buyer the broker introduced after the agreement ends.
The franchisor transfer fee
This is the franchise-specific one, and the most commonly misunderstood.
Your franchise agreement almost certainly contains a transfer fee, payable to the franchisor when the unit changes hands. It exists to cover the franchisor’s cost of approving, training and onboarding the new owner. It is disclosed in the FDD, usually in Item 6, and it is either a fixed amount or a percentage of the sale price.
Who pays it? Under most franchise agreements, the obligation sits with the seller. In practice it is negotiated, and it is frequently absorbed by the buyer or split, because by the time it comes up both sides want the deal done.
Two things to check in your own agreement before you assume anything:
- Whether the fee is fixed or scales with price. A percentage fee on a strong sale is a real number.
- Whether training costs for the new owner are separate from the transfer fee. Sometimes they are, and sometimes the buyer’s travel and training is billed on top.
Negotiate it explicitly in the letter of intent rather than letting it surface in diligence. Anything discovered late is paid by whoever has least leverage at that moment, and late in a deal that is usually the seller.
Legal and professional
Each side pays its own counsel. On a straightforward asset sale with a cooperative franchisor and a standard lease, this is a modest number.
It goes up when the lease needs renegotiating, when there is a dispute with the franchisor, when the structure is a stock sale, or when the buyer’s lender wants documents nobody has looked at in a decade.
If the sale price is $3M or more and the buyer is using SBA financing, a Quality of Earnings report is now required. That is the buyer’s cost in the first instance, but it is your books being examined, and a messy set of records costs you either in fees or in price.
Lease and landlord costs
Small numbers, easy to forget.
Most commercial leases make the tenant responsible for the landlord’s legal costs in processing an assignment, sometimes with an administrative fee as well. If an extension or a new lease is being negotiated as part of the sale, that is more legal time again.
What comes off at the closing table
These are not fees, but they come out of the same wire, and they are why the net surprises people.
Existing debt. Any loan secured on the business is paid off at closing. If you borrowed to buy the unit or to remodel, that balance comes off the top.
Prorations. Rent, royalties, utilities and payroll are apportioned to the closing date.
Accounts payable. On an asset sale, liabilities generally stay with you unless the agreement says otherwise.
Inventory. Usually valued at closing and added to the price, not deducted, but it is counted separately and sellers often forget to include it in their expectations.
What you do not get on day one
The gap between the agreed price and the money you receive at closing is often structural rather than a fee at all.
Holdback and escrow. A portion of the price held for a period against breaches of the warranties you gave. Normal, and released on schedule if nothing goes wrong.
Seller financing. If you are carrying a note, that part of the price arrives over years, with the buyer’s performance attached to it. Note that under the current SBA rules, seller standby debt plus equity from small investors is capped at half the required equity injection, which limits how much of the price can be deferred this way.
Earnouts. Contingent on the business hitting agreed numbers after you have stopped running it. Treat an earnout as upside, never as part of the number you are counting on.
Consulting or transition payments. The current SBA rules allow a seller to stay on as a consultant for up to twenty four months, doubled from twelve. That is both a service to the buyer and a negotiable element of your total consideration.
Tax
Not advice, and I am not your accountant. But it is the largest single deduction most sellers face, and it is decided by things that are negotiated in the deal, not after it.
Asset sale versus stock sale, how the purchase price is allocated across equipment, goodwill and a non-compete, whether an instalment sale defers gain. These are structural choices made during the negotiation, and they are far cheaper to get right then than to regret later.
Bring your CPA in before the letter of intent, not after. The allocation schedule is a negotiation, and your buyer’s tax interest is not the same as yours.
The one that costs most and appears nowhere
Not selling well.
A unit marketed badly, priced on a guess, shown to an unscreened buyer pool and withdrawn after eight months is the single most expensive outcome available to a franchise owner, and it does not appear on any fee schedule. The next time you list, buyers who saw it the first time wonder what was wrong with it.
Fees are knowable and negotiable. That one is neither.
The short version
Ask for the net, not the price. Get the broker’s fee structure in writing, including what counts as transaction value and what the tail provision says. Find your transfer fee in the FDD and negotiate who pays it in the letter of intent. Budget for lease consent costs. Expect debt, prorations and payables to come off at closing, and expect part of the price to arrive later rather than at the table. Talk to your CPA before the structure is agreed, not after.
Everything on that list is knowable in advance. Most sellers find out in sequence instead.
If you want to see what is currently on the market before you start costing your own exit, our live board is here: Businesses for Sale.
FAQ
How much does a broker charge to sell a franchise?
Business brokerage fees are a percentage of transaction value, paid by the seller from proceeds at closing, usually with a stated minimum fee. Some firms also charge an engagement fee upfront or monthly. What matters as much as the rate is how transaction value is defined, whether the fee is earned at closing or earlier, and what the tail provision says after the agreement ends.
Who pays the franchise transfer fee?
Under most franchise agreements the obligation sits with the seller, but in practice it is negotiated and frequently paid or shared by the buyer. The amount is disclosed in the FDD and is either fixed or a percentage of the sale price. Settle it in the letter of intent rather than in diligence.
Do I pay anything if my franchise does not sell?
It depends on the engagement. A pure success-fee arrangement means the commission is only earned on a closing. Where there is an upfront or monthly fee, that is paid regardless, which is why the structure should be in writing before you sign.
What comes out of the sale price at closing?
Broker commission, any transfer fee you have agreed to pay, your own legal costs, landlord consent and assignment costs, payoff of any debt secured on the business, prorations of rent, royalties and payroll, and accounts payable on an asset sale.
Why is my net so much lower than the sale price?
Usually three reasons together. Debt payoff comes off the top, part of the price is deferred in a holdback, seller note or earnout rather than paid at closing, and tax applies to the gain. Fees are rarely the biggest gap.
Can I sell my franchise without a broker?
Yes, and some owners do, typically where a buyer is already known to them. What you take on is confidential marketing, buyer screening and verification, the franchisor approval process, landlord consent, and negotiating against a buyer who has usually done this before. The saving is real and so is the cost.
When should I involve my accountant?
Before the letter of intent. Whether the deal is an asset or stock sale, and how the price is allocated between equipment, goodwill and a non-compete, are negotiated terms with large tax consequences, and they are much cheaper to get right during the negotiation than afterwards.