Becoming a franchisee is a big step. It requires an investment of time, effort, and capital to get a new business off the ground. As a new franchisee or a franchisee candidate, there is a crucial step that is often overlooked: the franchise exit strategy.
One of the best pieces of advice the HIRE YOURSELF consultants can give you is: begin with the end in mind.
You may want to pass your franchise operations down to your children when you retire, or you may want to sell the business when you reach an age with a comfortable amount of savings. Either way, at some point, you will be exiting your business. There is always considerable demand for purchasing existing businesses–including franchises.
When you consistently plan for your franchising exit, you will have a substantial investment and a business that will grow while you own it. When you manage your business with the exit in mind, you will always focus on best practices making your business more efficient and financially sound.
Why Would Someone Buy an Existing Business
You built your franchise location from the ground up. Why would anyone else not do the same? There are multiple reasons.
Often new franchisees want to accelerate the time to opening their doors. There is always a lag time from investment to profit due to build-out. Buying an existing franchise means that time is significantly reduced.
Often they are looking to buy cash flow an existing business already maintains. They also get customers and employees during the transfer of ownership.
As a business owner who may sell one day, these are essential ideas to keep in mind as you build and grow your business. Anyone buying an existing franchise location is purchasing an opportunity. The better the opportunity, the more they will pay.
We have a few tips on making your business enticing for a successful franchise exit strategy based on our experience.
Franchise Exit Strategy #1: Work "On" the Business
Working "on" the business is the most critical step you can take. Many business owners who aren't planning their exit from step one find that they don't own a business but a really expensive job when they go to sell. No one will buy a job.
As the owner, you should not make sandwiches or painting walls, or hauling garbage if you want to sell one day. You should be finding new clients, managing employees, and building connections in the community.
Franchise Exit Strategy #2: Always Prepare Solid Financial Statements
Nat worked with many mom-and-pop businesses as they tried to sell. He repeatedly ran into the same situation. The financial statements they provided didn't look like the businesses made any profit. The owners used all the tax advantages of business ownership and did make money but had no way to prove it. The advantage of a franchise is that most systems require proof of profits as part of the royalty.
You want your business to look enticing when you move to sell. No buyer wants to take an unnecessary risk. Investors are willing to pay more for businesses with substantial revenues. If you can prove reliable profits and acceptable accounting practices, the more someone might be willing to pay.
We aren't saying you shouldn't avail yourself of all the tax advantages business ownership has. We recommend ensuring that you continue to show the profit and growth you have earned amongst your tax deductions.
Franchise Exit Strategy #3: Have Good People
Buying a business presents two options: are you going to buy a job or a business? When the seller does "the work" of the business, whether it is cleaning a house or working on a retail store's sales floor, they are selling a job. You can get a job anywhere. Why would someone pay for one?
A successful business sale requires the owner to improve the business, manage employees, and take care of the processes and procedures of running the location. To do this, you have to have a good team.
Building a reliable team of employees and managers is vital. The better your business functions without you, the more likely someone will want to purchase it. They don't get you in the purchase for more than a few weeks of transition. If it seems like your business will fail without you, that makes a sale more difficult.
Before you sell, you should consider who owns the relationships. If you are the salesperson, the community contact, the marketing department, what happens when you leave? Those relationships and procedures might disappear. As you move towards selling, hiring qualified people to take on those roles will allow you to transition out of the business and let the new owner maintain the success you built.
Franchise Exit Strategy #4: Build a Good Image
How are your online reviews? Scant? Bad? Non-existent? That could be a problem. You need to make sure your business looks good, both online and in-person. If it seems like the 80's on the inside, no one will want to buy it. They will have to spend capital on a major update! Plus, who wants to come to work at a place that isn't aesthetically pleasing?
Your location should have curb appeal. It would be best if you had a turn-key business. Think of it like selling a house. All the same rules apply. Sure, some people are out there looking for fixer-uppers, but they also want to buy them cheap. You want to get the most out of your investment as you leave. The better the franchise looks, the higher the price it can fetch.
Beyond the physical location, the digital appearance is just as important. If your last review was from three years ago or you have a string of one-star customer complaints, you have a problem. When you know you are selling, make sure to contact customers and ask them to leave a review online. There are companies that can help manage your online reputation. If you are worried about yours, it might be a worthwhile investment.
Franchise Exit Strategy #5: Knowledge
As a franchisee, you will have many advantages a mom-and-pop store is missing. You have a support system in place to make your business successful through the franchisor. You may not have total control, but the trade-off is often worth it. Leverage your franchisors' knowledge as much as possible to get your money's worth and build a reputable business.
You can also seek other resources that will help you improve your abilities as an owner and manager. A few books we suggest reading are E-Myth Revisited, Traction, and Start with Why. There are so many resources, from podcasts to blogs and vlogs, that you can always find a way to build knowledge to build your business.
When you exit one franchise, you may be ready to enter another and there are plenty of options out there!
If you are interested in pursuing a franchise resale, contact the HIRE YOURSELF consultants for a free consultation. Their knowledge of the resale and purchasing process of an existing franchise can help you invest in a location to build your dream of business ownership.
