^{Originally published by FranchiseWire}

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Why Mastering the Letter of Intent Can Make or Break Your Franchise Resale

When it comes to selling a franchise, many owners believe the real negotiations begin after signing a letter of intent (LOI). The truth is, the opposite: The letter of intent is really where the game is won or lost.

Your story — and any leverage or negotiating strength — peaks at the LOI stage. In a franchise resale, this document is even more critical because it sets expectations not only between buyer and seller but also with the franchisor, whose approval is often required before a transfer can move forward.

Seller’s Leverage: Strongest at the Start

Before any LOI in franchising is signed, buyers only know what you tell them. They haven’t examined your financials or spoken to your staff, and that uncertainty gives you leverage. Once they gain full access, they’ll use what they discover to chip away at your terms, protections and price.

That’s why tough conversations must happen before the LOI is signed. Escrow amounts, indemnity caps, acceleration clauses and equity treatments must all be part of the discussion early on. If you leave them for later, they’re unlikely to improve — and could even get worse.

For franchise resales, this early leverage is essential. Buyers often need to factor in transfer fees, training costs and new franchise agreements. Discussing these items upfront ensures everyone understands the total investment before due diligence begins.

Precision Matters: Get It in Writing Early

Sellers often underestimate the importance of precision. Phrases like “normalized working capital levels” may sound harmless, but their definitions can swing millions of dollars.

An LOI in franchising shouldn’t just restate the purchase price — it should outline the mechanics of the deal: working capital targets, earnout structures, seller notes, escrow holdbacks and protections that may not otherwise be mentioned.

A clear, detailed two-page-or-longer LOI sets the stage for a smooth transition to closing. Don’t confuse an Indication of Interest (IOI) with an LOI. The IOI is informal and nonbinding, meant to open conversations and gauge interest. The LOI, by contrast, is a formal commitment to move forward into due diligence.

In franchise resale, precision matters even more. The LOI should address brand-specific elements, such as the timeline for franchisor approval, transfer fees, lease assignment procedures and training obligations. Leaving these undefined can lead to delays or unexpected costs that derail the deal.

The Role of Legal Counsel

Timing is critical when involving attorneys. Sellers should first align with buyers on core economic terms — price, structure and cash versus equity. Once those are set, legal counsel can refine and negotiate the “second layer”: indemnities, escrow, employment agreements and non-competes.

This sequence ensures your lawyer acts as a strategic ally rather than a roadblock. Always remember who the client is when working with an attorney. Listen carefully, but also trust your instincts — no one knows your business better than you.

In franchising, sellers should also engage legal counsel familiar with franchise law. Franchise agreements, territory rights and renewal terms vary widely between brands, and a lawyer experienced in franchise resale transactions can help navigate these nuances while keeping the deal compliant with the franchisor’s requirements.

Planning the Exit: Franchise Resales on the Rise

Many franchise agreements last around 10 years, and as those terms mature, franchise resales have become an increasingly common next step for owners. According to Franchise Update Media, 61% of franchisors now have a formal resale program in place to support transfers/resales. For many, selling a franchise is not a failure — it’s part of a well-designed exit plan.

The timing often aligns with the natural cycle of ownership. After a decade of growth and community building, franchise owners may be ready to capitalize on the equity they’ve created. Some owners expand into multi-unit ownership before selling, while others transfer their locations to incoming entrepreneurs who want a turnkey business with a proven record.

When handled strategically, the LOI ensures sellers capture the full value of their hard work, protect their investment and maintain leverage throughout negotiations — whether the buyer is a fellow franchisee or a newcomer to the brand.

For many owners, that sale marks both a proud milestone and a fresh start for someone new. But before anyone pops the champagne, the LOI is a critical step that can make or break the deal .

Common Mistakes That Cost Franchise Sellers

Before sellers reach the finish line, though, there are a few pitfalls to watch out for. Even the most experienced business owners can stumble during the process. Even seasoned business owners fall into traps such as:

• Agreeing to revisit details later.
• Refusing creative deal structures that could reach their target price.
• Signing without legal review.
• Failing to negotiate postclosing terms like salaries, holdbacks or earnouts.
• Allowing exclusivity clauses that shut out better offers for 90-plus days.

Franchise sellers face a few extra pitfalls. Many forget to factor in ongoing royalties, future marketing fees or the cost of transferring leases and licenses. Some even overlook franchisor training commitments, which can affect the sale timeline and overall value. Addressing these early can save time and preserve profitability in any franchise resale.

Key Clauses to Watch Closely

Every seller should focus on these red-flag provisions:

• Indemnities: Define scope and caps early.
• Exclusivity: Keep it narrow and time-bound; avoid blanket no-shop language.
• Earnouts: Ensure targets, budgets and autonomy are clearly defined—or risk having them become meaningless.
• Employment Terms: Salary, required hours, job duties and non-compete language should be included in the LOI, not later.
• Diligence Obligations: Don’t allow binding commitments to provide materials before the purchase agreement.

For franchise resales, add one more:

• Franchisor Consent: Confirm how and when approval will be granted. Some brands require background checks, interviews or additional fees before transferring ownership. Make sure these details are spelled out in the LOI.

The Mindset That Wins Deals

Strong negotiation isn’t about being combative — it’s about staying calm, being tough and thinking strategically. Never rush to your bottom line, and always leave “throwaway” terms you can concede later.

Once you sign, you may start mentally counting your proceeds — and that weakens your leverage. Maintain a strong BATNA, or best alternative to a negotiated agreement. Whether that’s another buyer or simply continuing to operate the business, a credible backup plan prevents desperate concessions.

For franchise owners, that could mean keeping the business open under a manager or exploring a sale to another franchisee within the network. Having options keeps you in control and adds flexibility in your franchise resale strategy.

LOI in Franchising

An LOI in franchising is not just a formality — it’s the foundation of your deal and your best opportunity to create leverage throughout the sale process.

When preparing to sell your franchise, keep these tips in mind:

• Lock in all critical terms at the LOI stage.
• Meet with multiple buyers to find the right cultural and financial fit.
• Demand precision on all economic and non-economic terms.
• Involve legal counsel strategically and early.
• Avoid common pitfalls and work with a franchising expert when possible.

Get the LOI right, and the rest of the transaction becomes seamless execution. Get it wrong, and you may spend months fighting uphill battles you can’t win.

About the Author

Paul Cheetham is the founder and CEO of Vanla Group, where he advises business owners on mergers, acquisitions, and exit strategies. He has more than 10 years of experience helping clients structure, negotiate, and close deals across multiple industries.

^{Originally published by FranchiseWire}