Good Will Sales-Time To Move On?

 

If you are voluntarily considering a good will sale, or if SEI is making that decision for you, there are some things of which you should be aware.

If it is just a matter of thinking that operating a 24/7/365 business for 20, 30 or more years is enough coffee and Slurpee under the bridge, then good luck and happy cruising! On the other hand, if SEI has declared you to be in violation of the store agreement with one or more incurable breaches, entitling it to terminate the agreement, then you may be permitted to enter into a settlement agreement allowing you to find a willing buyer—but within a limited period of time, typically 60-120 days. Before signing such an agreement, however, you should always contact your attorney to explain the terms to you and perhaps negotiate a better deal with SEI.

First and foremost, and assuming you are not in a breach situation, you are absolutely entitled to transfer your interest in the store agreement for whatever good will price you can get. That price can vary greatly—from a few thousand dollars in some parts of the country, to several hundreds of thousands of dollars in other parts. How a franchisee goes about marketing his or her store is a matter of preference, i.e., word of mouth, a business broker, media or online advertising, or all of these methods. One other method which makes a good deal of sense is to list the store as being for sale with your Market or Division office, which can then provide this information to prospective purchasers.

The big elephant in the room is that no sale can take place without the prior written consent of SEI. Not such an easy task. SEI has proven to be extremely selective when approving a prospective purchaser and, from my experience, the disapproval rate is very high. It is for this reason that every effort be made to find a quality purchaser who can meet the financial requirements of not only paying to you the good will price, but of paying the franchise fee and other miscellaneous fees that are disclosed on the offering circular.

I strongly urge my clients, before entering into a buy-sell agreement with a good will purchaser, to have that prospect meet with a franchise coordinator or market manager to get an explanation of the 7-Eleven system—which is very different from other franchise systems—and, most importantly, to get a preliminary approval of the prospect’s financial and casino online netherlands business qualifications. All things being equal, I believe it is better to sell your good will to an existing franchisee rather than to an outsider. Once an existing owner is approved for an additional store, the training and qualification process is generally quicker and the sale ultimately assured.

Whether or not your deal is for an all-cash sale or partially subject to promissory notes over a specific period of time is a matter of business judgment. But remember this: when selling a private convenience store or other business, the promissory notes are generally secured by one or more agreements, which permit the seller to repossess the store, inventory, equipment, etc., upon a default. Not so with a 7-Eleven store. There is no right to regain the store premises, business or other assets upon a default, and therefore such notes are often simply unsecured or, at times, secured by a mortgage on realty owned by the purchaser or frequently by a third party guarantor. It is always best to negotiate an all-cash sale whenever possible or, at the very least, keep the amount of the notes proportionately small and of short duration.

There are other conditions to obtaining SEI’s consent to transfer your store’s interest. Some of the more important ones are that you are not in material breach of the agreement and no termination is pending (except if a settlement agreement is signed); that the purchaser is made aware that he/she has no claim against SEI for any good will money paid to you or representations made by you; you pay all amounts due, or to become due, to SEI upon delivery of the final financials; that you sign a mutual termination of the agreement, general release of claims, and an indemnity in favor of SEI as to any claims against it by the purchaser arising out of the good will sale.

SEI agrees to approve or disapprove a candidate within 60 days after receiving all information regarding the proposed transaction. Upon approval, the purchaser must then sign the “then current agreement” which may be different from yours. Keep in mind, if you are on a 2004 agreement, your have the right to transfer the 50/50 split to a purchaser for the balance of the term of your SEI store agreement.

Then follows the training and qualification process, which can be lengthy and often depends upon the available schedule of training sessions, and the time it takes to get beer (if you sell beer) and lottery licenses. A period of six months or more from the date that you and your purchaser submit a copy of the buy-sell agreement to SEI, until the effective date when you are audited out and the purchaser begins operations is, unfortunately, not unusual. Check out paragraph 28 for the details of the Close Out Procedure. Hint: enter into a contract in the spring and book the cruise for December/January.

Remember also that SEI has a right of first refusal in favor of SEI or its designee (does this mean another franchisee or outside prospect that SEI prefers?). The right is exercisable within ten (10) business days after it receives a copy of the good will agreement between you and your buyers and must meet all of the terms that were agreed upon. In any event, I have no personal knowledge of any such right ever being exercised—but it could happen.

Finally, it is always a good idea to have your attorney draw the good will sales agreement to make sure that you are protected against any willful default by your purchaser and to make sure that the agreement contains certain provisions required by SEI.

Good luck!