When starting out on your franchise journey, it’s actually quite common not to give a second thought to your exit strategy. And why would you - it’s an exciting time when all your focus should be on building your brand-new business, not thinking about how you’re going to leave it?
Well, yes and no. When you write your business plan, you know that it will need to change and adapt over time but having a defined goal at the end will have a monumental impact on your strategy of how to get there, right from day one.
So, what are the reasons for bringing your time as franchise owner to an end? Reaching retirement age; no enthusiasm for signing up for another 5 or 10-year term; wanting to try something new; you’ve made enough money; you’ve not made enough money… surely the best reason of all is that you’ve reached your goal?
One of the most attractive aspects of franchising is the chance to build a business that not only provides you with a regular income, but also one that should hopefully appreciate in value and become an asset for your future. This is not always the case for those who choose to go it alone.
Franchisees have a brand, systems, a defined territory and ongoing training and support – in other words, much more than notional goodwill and a customer database. However, the actual resale value of a franchise will depend very much on how the franchisee has run the business.
Let’s say your goal at the start is to pass the franchise onto your children. There are lots of things to consider here – how are you going to get the business to the size, turnover and profitability it will need to be to support them when they take it over? Also, bearing in mind that the franchisor will likely have the final say on who you can sell/pass the business to, how are you going to ensure they are up to the required standard when the time comes?
What if your goal is to sell the business after 10 years and make enough money to comfortably retire? Sounds great, but if you don’t keep your focus on the eventual sale value of the business, you might get there and find you need another 10 years to get to where you actually need to be. Having a solid exit plan allows you to check in regularly on how you are performing against that ultimate target. For example, you might be enjoying 20% year on year growth and delighted with how things are moving along, but if it’s actually going to take 30% year on year to get you where you need to be by the end of those 10 years, you’ve suddenly got less to be delighted about, but at least you‘ve got time to do something about it.
So, what are the practicalities of selling your franchise? You’ll probably find it to your advantage to share your exit plan with your franchisor right from the outset, but your franchise agreement will dictate a minimum required notice period of your intent to sell or pass on the business. As mentioned, the franchisor will have to approve the new owner just as they would a brand-new franchisee, so springing your intentions on them at the last minute is unlikely to work in your favour.
Also, your franchisor might well have someone in mind for your territory – someone from their recruitment pipeline, or perhaps even a neighbouring franchisee. Working together towards a mutually beneficial exit would always the best advice – remember you are part of a network of franchise owners and the timing, and the manner, of your departure will have an impact on all of them too.
And finally, what about judging the sale value your franchise? There are a number of formulas used in the sector to value the business and it is wise to seek advice (franchise lawyer, consultant, your franchisor, resale specialist) to help you assess yours and package it properly for sale.
Bottom line, it’s far better to have a clear exit strategy from the outset and to work towards it, as opposed to trying to figure one out when you get there!
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