Franchising: Planning your exit strategy

It’s never too early for franchisees to plan an exit strategy, says Michael Hawkins, sales and marketing director at Mail Boxes Etc (UK)

Life is full of surprises and, as everyone knows, some are very exciting and others are not so good. Increasingly, we are urged to plan for every eventuality - from protecting our families, pets and homes from all manner of risks to thinking about how to achieve the happy prospect of a long, healthy and prosperous retirement.

Planning an effective exit strategy from working life is very important and needs to be considered carefully to enable people to make the best decisions about their futures, not least because there are so many options.

Fortunate
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Franchisees are more fortunate than most working people, as one of the great strengths of franchising is the partnership they enjoy with franchisors and the frequent opportunities they have to discuss a wide range of business and personal topics.

All the terms and conditions of a franchise are set out in a franchise agreement that’s designed to explain and reinforce the benefits and advantages for both parties. Franchisors provide help, support and guidance for their franchisees, based on sound common sense and their own direct experience. Specifically, franchise agreements include information that will help franchisees to plan properly for the day when they will want to leave the franchise to do something different.

One of the main attractions of franchising is the expectation that franchisees can develop their own businesses to sell some years later for a profit. The money is their reward for many years’ investment and dedicated hard work.

Prospective franchisees understand that when they buy a franchise they are making a big financial and personal commitment for a fixed period of time, typically five or 10 years, with an option to renew. The vast majority of franchisees achieve the success they seek, building up profitable businesses that still have a future even after they have moved on.

Before making any commitment, franchisees are advised to appoint a specialist franchise lawyer, affiliated to the British Franchise Association, to check all aspects of the franchise agreement, including provisions for ending a franchise agreement.

Enthusiasm
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It seems a contradiction to suggest considering what will happen at the end of the franchise just as people are full of enthusiasm to get going. Generally, they are likely to feel more confident if they can go forward with a well thought out exit strategy. Just like making a will and, without dwelling too much on the terrible things that might happen, it is important to plan some provision to mitigate the worst effects of any surprise disasters.

A franchise that has been established over several prosperous years will be worth considerably more than a brand new one and becomes a valuable asset that needs protecting. In choosing a franchise in the first place from the hundreds on offer, it is wise also to check the long term prospects for the sector and look objectively at the franchise’s ultimate resale ability.

Will it always be an attractive proposition by meeting an ongoing demand? Does the sector have a viable long term future? Is the franchise geared to a product or service that could be redundant in a few years time? Does it cater for a growing market? Does it offer an opportunity for continuing growth?

The most common reason franchisees sell or pass on their businesses is when they want to retire. One of the key factors for a smooth and trouble free handover is to have a timetable that begins well ahead of the planned retirement date, particularly because it can take some time to find the right buyer for the franchise - and at the right price - or to train the relative who will be taking over.

Usually, when a franchisee wants to pass on their business the family member or colleague will have been involved in it for some time and acquired a thorough working knowledge of all the systems and procedures so they could take over quickly.

Whether the prospective new owner buys the business or inherits it, the franchisor will be involved in the negotiations, as it is fundamental for all franchisors to approve any new franchisee joining their network. The proposed person or partnership must meet all the franchisor’s criteria, as well as suiting the outgoing franchisee. This is to protect the network as a whole and ensure all franchisees meet the same standards when taking over existing outlets.

In an ideal world where everything goes to plan, an exit strategy can be managed efficiently. It is preferable and much easier to deal with than a sudden event that affects a franchisee’s ability to carry on. Sometimes unforeseen circumstances force people to reconsider and drastically alter their plans for the future. Dramas can include anything from severe illness or an accident to a mid life crisis or even death.

Another possible scenario is when two partners in a franchise decide to go their separate ways, whether that is a husband and wife team seeking a divorce, two non related business partners falling out with each other or when one partner wants to retire and the other one doesn’t. Franchisees may not like to think beforehand about the consequences and complications of ending a partnership, which is why objective guidance from an astute franchise lawyer can be so helpful.

Sympathetic
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Franchisees should be aware of the terms of their franchise agreement and how much support they could reasonably expect from the franchisor in the event of a disaster, especially if this results in the franchisee having to give up the business. In practice, most franchisors are extremely sympathetic and do everything they can to support a franchisee through a crisis, including immediate practical help to keep the business going while problems are being resolved or pending an inevitable resale. Other franchisees in the network frequently pitch in to help too.

A franchise changing hands is more likely to happen in a mature network and as franchisees grow older. My own franchise, Mail Boxes Etc, has been established in the UK for 21 years and during that time many successful transitions have been achieved as franchisees retire or decide to go in a new direction. We work hard ahead of time so that handovers can happen seamlessly to ensure that business carries on as normal.

Imagine the perfect exit strategy where a franchisee decides when to leave, starts the process well ahead of time, finds a buyer at the right price and who also suits the franchisor, completes the deal and receives the money to do whatever he or she wants. It sounds like an impossible dream, but actually it is achievable for anyone who starts planning as early as possible and is determined to make things happen. It could be you.