Strategies for Franchise Exit: A Brief Guide
When thinking about a franchise company’s exit, it’s common to presume that one of two things happened: either the company was so successful that a buyer approached it, or it was such a disaster that the owner had to “get out.” Like most things, there’s usually a more nuanced genuine solution. There are a ton of additional reasons why someone may want to close their firm.
Despite its importance in the planning process, an exit strategy is often ignored in the excitement of launching a franchise firm. This makes sense because we generally prefer not to consider a journey’s end before it has even begun. But in my years as a franchisee and consultant, I discovered how crucial it is to have an exit strategy in place. The best course of action? Plan beforehand to avoid having to make important decisions under pressure later on.
Plan ahead to maximize your exit value before a significant change forces your hand. Typical causes for leaving a franchise include:
- Getting an irresistible job offer
- Determining they’re prepared to retire
- Undergoing a significant life transition, such as a divorce, a move, or illness
- Getting an unsolicited offer for a profitable company
- Deciding to expand or buy another company
- Divorcing a business associate
- Financial difficulties in an already-existing company
For the final reason, it’s critical to keep in mind that a firm does not necessarily lack value even if it didn’t produce the results the franchisee had hoped for. When a business owner is having difficulties running their enterprise, they frequently sell it to someone else who can take over and turn it around. After all, the first owner’s efforts, which included crucial and time-consuming beginning tasks like obtaining a commercial lease, acquiring goods and equipment, hiring and training staff, and developing a clientele, probably sped up the launch ramp for a new purchase.
Through the Franchisor
This choice is contingent upon how developed your franchise network is. Let’s take an example where your franchise brand has existed for forty years. In this case, they might have a whole staff devoted to reselling, along with unique initiatives in place to assist underperforming sites in their efforts to cycle out. As an alternative, let’s assume the system is a more recent franchisor. In this scenario, the brand might not have a dedicated resale team, but they might still know brokers or consultants who could help you close a deal. What’s the major idea here? Keep your franchisor informed; your interests are aligned, and what’s best for you will probably be better for them down the road. Don’t keep them in the shadows.
Having said that, maintaining open lines of contact with the franchisor does not guarantee that they will handle the issue for you; but, being upfront and honest will increase your possibilities.
Engage a Business Intermediary
Selling a business will always take time, but if you need to move faster rapidly (sell in six to 12 months), the biggest possibility of success often lies in engaging a business broker in your area. Working with a broker has several advantages, including access to a huge buyer database in your local market and their industry knowledge. It is their responsibility to regularly distribute possibilities to their wide network of possible customers.
Since business brokers are experts at handling deals, they can also put you in touch with other process facilitators, such as attorneys, due diligence, closing, escrow, etc. Recall that, similar to a seasoned real estate broker, they probably want an exclusive listing. Although the conditions are frequently adjustable, these agreements are typically for a period of 12 months. Additionally, you might be able to work out fee exceptions for particular purchasers, such selling to another franchisee, etc.
What is the cost of the fees? The fees will be deducted as a percentage from the final sale; for smaller selling transactions, this could amount to as much as 10%.
Take the Plunge and Market Yourself
Ultimately, nothing prevents you from attempting to independently market your franchise. Perhaps some of your clients are so fond of your company that they hope to buy it someday. Sometimes, even if you had no intention of selling, someone can come up to you and make an offer. You can avoid going through the broker process in this situation by hiring an attorney (win-win).
There are a few factors to take into account, even though this could seem like a desirable option. It takes a lot of marketing to promote your business of sale if you don’t have an immediate buyer. As an illustration: Consider selling your home without the help of an agent; it will likely receive fewer views and you might still need to pay a buyer’s agent. Finding ready, willing, and able buyers is the biggest obstacle to independent selling.
Speak with a Franchise Advisor
Speak with a franchise consultant who works with your franchise brand (choose a franchise consultant who is a member of a national network in your market) as a less common option. They certainly don’t have as big a local database as a business broker, but they do have a consistent flow of prospective franchisees. They might have prospects, either past or present, who fit your brand. An experienced consultant in your market may also be able to help you find purchasers, even if they do not have as large a local network of business brokers. However, you should expect to pay any fees that may be necessary, not the franchisor. Even though a franchise consultant isn’t a miracle worker, it’s nonetheless worthwhile to talk about.
In the end, creating an exit strategy doesn’t have to be done in a certain way, but it is crucial to do your homework in advance to avoid making rash choices while under pressure.