Nothing lasts forever, so everyone needs an exit plan.
Whenever I interview a new franchisee, I always make a point of discussing exit strategies. It helps if everyone is on the same page and working towards identical goals from the start.
“People don’t buy drills; they buy holes.” – Zig Ziglar
And let’s face it, most businesses are simply a means to an end. A franchise is a vehicle for your hope and dreams. A way for a franchisee – or even a franchisor – to earn enough to gain the freedom to do what they really want to do in life. A junk removal or cleaning company might not be glamourous but it may be lucrative and enable a someone to achieve their ambitions faster than a trendier franchise, but only if they sell at the right price.
Simon Sinek said: “We don’t buy the tools; we buy the results. When we think, act and communicate in a way that starts with our Why, we tell people the problem we intend to solve for them.”
Being open and upfront can support a future franchise sale as a carefully planned exit will work out better for the franchisee as much as the franchisor. Therefore, own your exit strategy.
For franchisors this might mean choosing the right software or operating systems as a potential acquirer so it’s an easier fit when the time is right to sell the business.
For franchisees, it’s all about being prepared. A well run, profitable franchise is easier to sell and will be more valuable than one with outstanding debts, issues with HMRC or ongoing employee claims. Franchisees will need to get their house in order and be ready to answer questions. See these questions as a way of the buyer assessing value so don’t be defensive.
What can go wrong?
When selling a franchise probably the most common thing that goes wrong is that the sale takes far longer than anticipated. During this time, the franchisee may give up and shut up shop. The franchisor is then left with the unenviable task of deploying an interim manager until all the issues can be mopped up and the business can be sold on. Neighbouring franchisees may offer an opportunity here as they can be acquisitive, particularly if the franchise is going at less than the market value.
Alternatively, a franchisee may become inpatient and try and find their own buyer without discussing this with the franchisor first. However, it is important to note that franchisors will need to approve any new incoming franchisees. This becomes a particular issue in the more heavily regulated sectors such as care or children’s franchises if negotiations are further down the line but the proper checks – which the franchisor would normally undertake – have not been completed. Similarly, much time will be wasted if a CCJ or DBS is flagged late on in the negotiations.
Franchisor denial
It’s important to distinguish between a planned exit and a fire sale where the franchisee has simply had enough and decides to sell. Here franchisors need to take more responsibility for the success of their franchisees. By their nature, franchises should be easy to run with the proper training and support. However, so often once franchisees get going, they are left to their own devices and things can go wrong quickly.
Franchisors are often in denial about these struggling franchisees.
Regular reviews should identify any challenges early and enable the franchisor to step in and help the franchisee overcome the obstacles they face. An honest conversation and a firm action plan followed by a couple of months active implementation may get the franchisee back on track and save the need for a franchise to be sold at all. In these situations, it’s important to get to franchisees quicker than you think you need to, to improve outcomes.
Managing expectations & consulting experts
Reselling a franchise can take between 6-12 months so if a sale does need to go-ahead, managing expectations relating to timelines can smooth the process.
Using franchise experts for brokering the deal, for legal work and accounts preparation will mean you won’t have to educate professionals about how the industry works. It will save time and therefore cost during the sale process.
Basil Peters in his book Early Exits: Exit Strategies for Entrepreneurs and Angel Investors said: “Exits are the best part of being an entrepreneur or investor. It’s when we get financially rewarded for all of the creativity, hard work, investment and risk we put into our companies.”
For this reason, exits must be owned and planned early to maximise value.
