When and how to plan your departure from your franchise business will depend upon several factors, including how many years the business has been established , the business’ annual income and the value of the business assets and equipment.
You might have aspirations to run your franchise for a set period, or until you retire, in which case you can plan fairly easily for an exit date. However, there might come a time when you are obliged to sell your franchise. Find out more about planning your future as a franchisee.
There could be a variety of factors that inspire or compel you to move on. These could be financial, in that you’ve made a particular amount of money and can now move on or retire. Alternatively, it could that, having worked on a proven formula; you’re inspired to set up your own business. It’s possible you want to become a franchisee in a new sector altogether.
The important thing is that your franchise business shows it can generate maintainable profit, which makes it attractive to a new franchisee. This usually incorporates the last three years’ earnings. But there are ways you can make it more attractive to sell.
You’ll want to show evidence of a recent consistently strong financial performance . Your business can appear more attractive to prospective buyers if it is not dependent on a limited number of clients, and that the expertise and responsibility is not concentrated into a minimal number of employees. A low staff turnover and happy staff can also demonstrate the businesses success. All this will add to the business’ value.
The key to selling your franchise is to set yourself achievable goals, a realistic timescale in which to achieve them and to have a solid exit strategy in place. Ultimately, whichever prospect is interested in your business franchise, the franchisor will need to approve them. Their suitability as a buyer will depend on similar factors that made you a suitable buyer initially. These include their ability to commit to the required financial contributions and the extent of their borrowings. The franchisor is concerned with ensuring the new franchisee is likely to be good for the business, rather than whether you achieve your desired price.
To increase the attractiveness of your franchise business to a prospective buyer, you will need to prepare a business prospectus, which a sales agent or broker can help you to prepare. The prospectus includes a description of your franchise, your profit history, 3 years of accounts, documentation of key contracts with clients and customers, suppliers and employees, and, of course, price.
It’s worth taking time to sell your business properly as the longer it’s on the market the greater the impact on your desired price. Hiring an expert business broker will enable you to sell efficiently but will of course incur a fee.
Marketing your business is essential, but rein in the money you spend on marketing. Plan for an exit budget that covers the marketing of your business as well as the costs of hiring a lawyer and accountant, as they will oversee the contracts, franchise and lease agreements, and tax planning. You might also need to budget for a franchise broker to manage the sale of your business.
Use online, print media and buyer databases to increase your chances of finding a buyer acceptable to the franchisor. Do keep day-to-day operations going even though your business is on the market, as a good bottom line keeps your business attractive to buyers. Doubtless you will continue to be caught up in the running of the business itself and a broker can help you to manage the sale.
You can list your business silently, which may be ideal for high-profit franchises, or if you aren’t in a hurry to sell. A silent listing means that while your business is not actively marketed, suitable buyers are nevertheless made aware of it. This can take longer than a business sale conducted with an active marketing program.
Depending on whether your sale is a public or private listing you might expect to allow 2-3 months to complete a settlement.
Because a franchise is already a well-established business, they are fairly easy to sell on. Before selling on to another party, the franchisor has the first ‘right of refusal’ to purchase the business back. Selling a franchise back to the franchisor, rather than a less experienced third party, similarly requires some planning.
There’s plenty of advice available at all stages of selling your business franchise, some of which is freely available online, and some you can pay for by engaging a business advisor early on. The British Franchise Association also has rich information for affiliated franchisees to draw on wherever you are in your business journey.