Keeping the end game in mind will ensure a smooth transition when it’s time to sell your franchise business
When a franchisee starts their business journey, it’s quite common for one of two things to happen: their exit plan is no more detailed than getting through the initial five-year trading period or they know exactly when they want to sell their business and for how much, but then forget to run their franchise with those ambitions in mind.
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 should also appreciate into a valuable asset.
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 on how the franchisee has run the business.
Defining your goal
Let’s say your goal as a franchisee is to pass the business to your children. There are lots of things to consider, including how you’re going to get the business to the size, turnover and profitability it will need to be to support them when they take over. Also, bearing in mind your franchisor will have the final say on who you can sell or pass the business to, how are you going to ensure they’re 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 retire? Sounds great, but if you don’t keep your focus on the eventual resale value of the business, you might find it will take another 10 years before you can stop working.
Having a sound exit plan allows you to assess how you’re performing against that ultimate target. For example, you might be enjoying 10 per cent year-on-year growth, but if in reality it’s going to take closer to 15 per cent annual growth to get where you need to be by the end of those 10 years, the sooner you find that out and can do something about it the better.
Selling your franchise
What are the practicalities of selling your franchise? You’ll probably find it to your advantage to share your exit plan with your franchisor from the outset, but you’ll certainly need to give it at least a year’s notice of your intent to sell or pass on the business.
Working together towards a mutually beneficial exit would always be my advice. Remember, you’re part of a network of franchisees and the timing and manner of your departure will have an impact on all of them too.
Judging the sale value
What about judging the sale value of your franchise? There are a number of formulas used in the sector to value a business and it’s wise to seek advice to help you reach a figure and package the business for sale.
The bottom line is 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.
Suzie McCafferty is CEO of franchise consultancy Platinum Wave