We asked three BFA (British Franchise Association) members for their thoughts on exit planning, execution and top tips for a successful outcome.
47% of businesses don’t have exit strategies – 100% of franchises do
Amrit Dhaliwa, chief executive of Walfinch says a franchisor should start talking about exit strategies early in the sales process: “When you start a new business, the last thing on your mind is, ‘What happens when I want to pack it in?’ It’s like making a will, lots of people don’t want to think about it, so it’s not surprising that 47% of UK businesses don’t have any exit strategy. However, this is very unlikely to happen with a franchise. Almost all franchises are offered for a specific term, most commonly five years, though typically a franchisee has an automatic right to renew the contract for another five-year term, provided they have performed satisfactorily, so they are always aware of potential exit points.’’
Think about your exit before you invest
Amrit continued: “If you buy a franchise, don’t be surprised that the franchisor wants to discuss your exit plans even before you have signed the franchise contract. It pays to think carefully about your long-term goals and discuss them honestly with the franchisor. Do you want to create an asset to sell on, renew your term, retire or leave your business to someone in the family? Whatever your plans, the exit strategy forms a valuable part of the goal setting for your franchise, a great aid to planning and a great incentive to grow.”
Plan your exit strategy
You’ve understood that you can sell your franchise, but what does an exit strategy look like in real terms? What does it involve and when should the process begin?
David Glover, joint CEO of Caremark Ltd said: ‘It’s important to plan ahead and consider your exit strategy at least two years in advance of your sale. You need to work with both your accountant and your franchisor to consider the best way to sell the business. Work with your accountant to determine your franchise’s fair market value, considering factors like profitability, location, and brand reputation. Determine if your business is an asset sale or a share sale and understand your franchisor’s approval process, for instance what factors, such as experience or skill set, make someone a desirable buyer that your franchisor will approve? Develop a marketing plan with your franchisor to attract qualified buyers, highlighting the franchise’s reputation and your business’s strengths. Consider using external portals to promote your business opportunity for increased exposure. By planning ahead, collaborating with your franchisor and advisors, and understanding your business’s value, you will ensure a smooth transition for yourself, your employees, and the incoming owner.”
Top tips for selling your franchise
Once you have decided to sell your franchise, you’ve worked out your exit strategy and the wheels are in motion, Beth Cowlam, franchise recruitment manager at Stagecoach Performing Arts has some final top tips to help you exit smoothly and get the best price for your business.
“Have everything ready for a potential buyer to see, pull together records, contracts and paperwork and make sure you resolve any ongoing disputes. Clean up your financial records and try to increase the value of the business by boosting sales. Set a realistic asking price, be open and honest with potential buyers and encourage them to visit your business. Consider hiring a broker. Set yourself a realistic timescale but in the meantime, remain motivated and continue to ensure the business is flourishing. Once you have found some interested parties, engage with them, be prepared to defend your valuation during negotiations, keep a close eye on the legal and contractual aspects of the deal and ensure payment terms are clear.”
Beth’s final top tips are: “Don’t rely on other people to sell your business; don’t think you don’t need to invest in marketing to sell your business and don’t be overconfident in the price, be prepared to negotiate and be patient.”
