Franchisees should start thinking about exit strategies before they ever open for business
When you open your first franchise business, it is a very exciting and exhilarating time. Everything is new, you’re learning lots of new things, investing in growth and opportunities, hiring new people, meeting new customers, and executing the plans. It is a thrilling time for sure. But what about your exit strategy? It may be the last thing you’re thinking about, but it actually should be the first. Having a long-term plan and exit strategy will protect the franchise business you are building and will help you reach your goals.
There are several ways a franchisee can exit a business successfully. Here, we look at six viable options.
Sell to an existing franchise owner
The best possible buyer would be another franchisee in the same system. After all, existing franchise owners are already experienced in owning the exact same business. For that reason, they would very easily qualify with the franchisor. And since the franchisee knows the ins and outs of the business, he would recognize the value of what you’ve built. That equates to a very short and easy negotiation process to determine a reasonable value and come to terms with a deal.
Sell to a new franchisee (franchise resale)
Franchise resales are a great way for people to get into business quickly. The buyer can step right into the franchise, without having to build a team from scratch or create a presence in the community. Ideally, the new candidate is sourced by your franchisor. Make it known to your franchisor that you want to sell. Your franchisor could have leads in your area.
The real challenge here is making sure that the new franchisee candidate is qualified by the franchisor. The franchisor has the right to approve the buyer before the transaction moves ahead. This process obviously takes a little more time than selling to an existing franchisee and has some complications and risks. For example, If the new buyer is sourced by an outside franchise consultant broker, there may be a fee attached. Also, a new buyer may not understand the full value of what you built, so negotiations might take a little longer.
There are various groups around the country that specialize in franchise resales. Search the internet and you’ll find multiple providers of this service. Some work directly with the franchisee, some with the franchisor. Franchise resales are a viable option that usually occurs when someone is ready to sell and there is no nearby franchisee ready to buy.
Sell your business back to the franchisor
This strategy might be a long shot with many franchises and worth looking into before you invest in a brand. Most franchise systems focus on franchising, but not so much on corporate operations. However, it’s worth asking.
Engage a franchise business broker
A franchise broker can help you find a buyer who could qualify as a franchisee for the brand. In this case, you are engaging the broker directly as the seller. The broker finds the new potential candidate, then you need to direct them to your franchisor to qualify and follow the process of becoming a new franchisee. Obviously, there’s an additional cost with a broker fee involved, which can be substantial. However, you only pay a broker’s commission once the deal is closed. Typically, a franchise broker can add enough value to justify the fees by finding qualified candidates and by helping to guide the buyer through the transaction process.
Sell the business as an independent operation
This might be a less-than-ideal option, but it’s an option to consider if all else fails. You can rebrand the business, drop the relationship with your franchise system and sell it as an independent operation. This is a more challenging and difficult path. The franchisor would need to release you from your obligations and post-term, non-compete and allow the unit to go independent outside of the brand.
This might only be a last resort if you’re unable to achieve any of the above selling options. It’s certainly better than closing up shop and walking away with no transaction at all.
Pass down the business to your family
Lots of people enter into business intending to pass it down to their children. For many, this is the ultimate family legacy, but it still must be handled correctly. When the time comes, there must be a real commitment and a desire from the children to run the business. The next generation should be prepared to take over, not only in name but as leaders. Ideally, by the time you are ready to hand over the reins to your children, they already know how to run the business and have taken on leadership roles. If needed, professional managers can be hired until the children or other relatives are ready to take over complete control.
They say all good things come to an end. That includes ownership of a franchise business. Whatever course you choose, make sure you have a plan. As Yogi Berra once said, “If you don’t know where you are going, you’ll end up someplace else.”