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When considering the exit of a franchise business, it can be easy to assume the reason for exiting is due to one of two possibilities: Either the business was so successful that someone made an offer to purchase it, or it was such a failure that the owner had to “get out.” As with most things, the real answer is often more complicated. There are plenty of other reasons someone might be looking to exit their business.
In the excitement of starting a franchise business, an exit strategy is frequently overlooked, despite its importance in the planning process. This is understandable since we usually don’t like to think about the end of a journey before it’s begun. However, during my years as a franchise consultant and franchisee, I learned the importance of having an exit strategy in place. The best thing you can do? Plan ahead so you aren’t making critical future decisions under duress.
Optimize your exit value by planning before a major change forces your hand. Common reasons people exit a franchise include:
- Getting a job offer they can’t refuse
- Deciding they are ready for retirement
- Experiencing a major life change (divorce, family change or illness)
- Receiving an unsolicited offer for a successful business
- Choosing to acquire or expand in another business
- Breaking up with a business partner
- Financial struggles in an existing business
For this last reason, it’s important to remember that just because the business didn’t deliver the outcomes desired by the franchisee, it doesn’t mean there is no value. It’s common for business owners having trouble operating a business to sell it to a new owner who can step in and make it successful. After all, initial efforts by the original owner have likely shortened the launch ramp for a new buyer, including critical and time-intensive startup tasks such as securing a commercial lease, procuring equipment and inventory, recruiting and training employees and building a customer base.
With all that in mind, here are four ways you can exit your franchise.
Related: 6 Things to Consider When Getting Out of a Franchise Agreement
1. Through the franchisor
This option depends on the maturity of your franchise system. For example, say your franchise brand has been around for 40 years. In this scenario, they may have an entire team dedicated to resales, including special programs in place to work with lower-performing locations to encourage them to cycle out. Alternatively, say the system is a younger franchisor — in this case, the brand may not have a resale team in place, but they could still have relationships with brokers or consultants to assist you in a sale. The main point here? Don’t keep your franchisor in the dark — you and the franchisor have aligned interests (what’s good for you will likely be better for them in the long run).
That said, keeping open communication with the franchisor does not mean they will solve the problem for you, but there will be more options available if you are transparent.
2. Hire a business broker
Selling a business will always take time, but if you need to move more quickly (sell in six to 12 months), the highest likelihood of success often lies in hiring a business broker in your area. The benefit of working with a broker is their industry knowledge and access to a large database of buyers in your local market. It’s their business to send out opportunities to their large network of potential buyers frequently.
Business brokers are professionals at conducting transactions — so they can also connect you with other people who will help with the process (attorneys, due diligence, closing, escrow, etc). Keep in mind: Like a good real estate agent, they are likely looking for an exclusive listing. These agreements are often in place for 12-month terms, although terms are often negotiable. You may also be able to negotiate fee exclusions for specific buyers such as selling to another franchisee, etc.
How much are the fees? The fees will be a percentage of the final sale — expect this to be as much as 10% or a minimum flat rate on smaller sale transactions.
3. Go it alone and sell yourself
At the end of the day, there is nothing that says you can’t try to sell your franchise independently. Maybe you have customers that love your business and would dream of owning it one day. Occasionally, even if you weren’t thinking about selling, someone may approach you and put in an offer. In this case, you can hire an attorney and forgo the broker process (win-win).
While this may seem like an appealing option, there are a few things to consider. If you don’t have a readily available buyer, it takes a substantial amount of marketing to promote your business of sale. For example: Think about selling your house without an agent — not as many people will see it and you may have to pay a buyer’s agent regardless. The main challenge in selling independently is being able to find ready, willing and able buyers.
Related: Before You Enter into Franchising, Consider Your Exit
4. Contact a franchise consultant
A lesser-known option may be to contact a franchise consultant who works with your franchise brand (choose a franchise consultant who is part of a national network in your market). While they probably don’t have as large of a local database as a business broker, they have a steady stream of buyers looking to start a franchise business. They may have current candidates or former candidates that align with your brand. And though they may not have as large a local database of a business broker, an experienced consultant residing in your market could have possible buyers for you — but expect that any fees required are paid by you, not the franchisor. A franchise consultant may not be a silver bullet, but it’s worth having a discussion.
Ultimately, there is no one-size-fits-all process for setting up an exit strategy, but it’s important to do the research early so you’re not making any hasty decisions from a position of duress.