Suzie McCafferty, managing director of Platinum Wave, explains why
When starting out on their franchise journey, it’s quite common for franchisees not to have given a second thought to their exit strategy. And why would you? It’s an exciting time when all your focus should be on building your new business, not thinking about how you’re going to leave it.
Well, yes and no. When you write your business plan, you know 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.
What are the reasons for bringing your time as a franchise owner to an end? Reaching retirement age, no enthusiasm for signing up for another five 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 one that 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 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 over?
Also, bearing in mind that your franchisor will likely have the final say on who you can sell/pass the business on 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? That 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 need to be.
Having a solid exit plan allows you to check in regularly on how you’re performing against that ultimate target.
For example, you might be enjoying 20 per cent year on year growth and be delighted with how things are moving along, but if it’s actually going to take 30 per cent year on year growth to get you where you need to be by the end of those 10 years, you’ve suddenly got less to be delighted about.
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 them at least a year’s notice 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 there’s zero advantage to springing your intentions on them at the last minute. 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 be my advice. Remember, you’re part of a network of franchise owners and the timing and manner of your departure will have an impact on all of them too.
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 from a franchise lawyer, consultant, your franchisor or a 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.
Suzie McCafferty founded Platinum Wave in 2010, after gaining more than 10 years’ experience in the engine room of franchising, first as a franchisor who built her own retail brand from a single store to a network of over 60 outlets in six countries, then as the franchise director and board member of a multi-million pound division of a recruitment plc.
She is the chairperson of the British Franchise Association’s Scottish regional forum.
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