Suzie McCafferty explains why franchisees should have a well thought out exit strategy from the outset
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. However, having a defined goal at the end will have a monumental impact on your strategy of how to get there from day one.
Reached your goal
What are the reasons for bringing your time as a franchisee to an end? These can include reaching retirement age, no enthusiasm for signing up for another 5 or 10-year term, wanting to try something new and the realisation you’ve made enough money. But 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 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.
Things to consider
Let’s say your goal at the start is to pass your franchise onto your children. There are lots of things to consider here, 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/pass the business to, you must 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 comfortably retire? 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 your 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 to get you where you need to be by the end of those 10 years, you’ve suddenly got less to be delighted about.
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 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 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. It’s also worth remembering that you’re part of a network of franchisees and the timing and manner of your departure will have an impact on them too.
Finally, 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 franchise lawyers, consultants, your franchisor or a resale specialist to help you assess yours and package it properly 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.
About the author
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 multimillion pound division of a recruitment plc.
She is the chairperson of the British Franchise Association’s Scottish regional forum.