Buying a Franchise

Planning Your Franchise Exit Strategy

When you decide to invest in a franchise business, you’ll have plenty of serious thinking to do. You may also have some dreams — you may see yourself adding more franchise units till you’re a regular franchise mogul, or you may see yourself riding off into the sunset after a few years with the profits of a successful sale.

There are plenty of other successful outcomes, depending on your idea of success, but you should at some point get your serious thinking and your dreams together and determine just what a successful outcome will be for you and how you plan to get there. In other words, you need to know the end of your franchise story before you get going with the first chapter.

The main reason to develop your exit strategy before you get started is to increase the chances of getting what you want out of the franchise. Your plans for ending your relationship with the franchise — whether you envision retiring and leaving the company to your son or building a strong franchise and selling it before moving on to your next business venture — are a goal. With any goal, your chances of reaching that goal are increased by having a clear plan.

And yet many small business owners, including franchise business owners, have a goal that’s something like, “Earn as much money as possible” or “See how it goes.”

Yet the steps you would take along the path to building your business quickly and selling it in three years are not the same as the steps you’d take toward working happily in your business for thirty years.

In fact, the franchise you buy might be different, depending on the exit strategy you choose. If you plan to sell your franchise after building its value, you will need to know the rules for selling the franchise. Few franchisors allow you to decide to sell and conduct the transaction without their having input into the next owner. The next owner of the franchise, after all, will be a franchisee and will have to meet the franchisor’s criteria.

For the same reason, you may not be able to decide simply to work in the franchise all your life and leave it to your son or daughter. If this is your goal, you must plan ahead and make sure that your kids will be able to satisfy the franchisor when the time comes. You should also have a plan B in case the next generation decides not to go into the family business.

Look into the options for terminating a franchise without selling or bequeathing it, too, when you’re looking for the best franchise investment opportunity for you. If you choose to retire from the franchise, will the franchisor buy it back from you? If you want to keep the franchise all your working life and then put a manager in place and continue to draw from the profits of the franchise, will the franchisor allow that?

A franchise business is an investment, not a job. Figuring out the payoff you want and how you want to achieve it is a smart move from the start.

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