Planning for the Worst and Expecting the Best: 3 Exit Strategies for Franchisees

So, you’ve just purchased a franchise and are looking forward to getting it off the ground. Congratulations! This is a huge first step towards becoming a successful business owner. But, have you put any thought towards what you’ll do in the event that you want to sell or get rid of it down the road? If you haven’t, don’t worry. It’s natural not to think about how to end something when you’re still trying to get it started, which is why we’re here to tell you why planning an exit strategy at the outset of owning your franchise is actually a good idea. A lot can happen, both positive and negative, so it’s always important to make sure you have a plan in place for what might come up in the future.

There are several different exit strategies you can employ when it comes to getting rid of your franchise. From having it pass on to an heir to selling it outright, continue reading to find out more about which exit strategy might be the best fit for you and your franchise.

1. Pass it along

Passing your business off to a family member or valuable employee is the more traditional route that franchise owners take. Oftentimes, this is even an ideal choice because then you know that you’re leaving all of your hard work in good and able hands.

A franchise is a different kind of business sale, too.  It is governed by the franchise agreement the franchisee signed.  Usually, even the sale of the franchise has procedures and requirements that must be followed.  Your buyer, the potential new franchisee, must be approved by your franchisor and understand that they will become subject to your franchise agreement or a new one.  In most franchise agreements I have reviewed, the franchisor has an absolute right to match your buyer’s offer and acquire the franchise itself instead of letting you sell it to a new franchisee. This applies to sales to family members or employees as well.

Of course, as with any plan, allowing an inexperienced or unwilling heir to inherit your business is not always the best idea—so owners may turn to internal employees who really know the business and are invested in a more meaningful way. Regardless or whether or not you choose this option, it is important to make sure that the transition plan behind this choice is solid and, if possible, supported by the franchisor itself.

2. Sell it off

There are a few options that exist with this exit strategy. For example, you could sell it back to the franchisor as it’s likely that they already have a process set up for how to go about these situations. Another option is selling it to the highest bidder. There are many types of people that would want to purchase a franchise from you, such as aspiring franchisee owners like you once were, or perhaps a larger management company that has a bigger portfolio.

Regardless of who you sell it to, you’re going to have to make sure that you have a solid sale procedure in place to make sure everything runs smoothly. This is why it is so important to have an exit strategy in place from the start. Selling your company is not necessarily a negative thing so you’ll just want to be prepared.  One of the smartest pieces of advice I ever heard from an attorney was that the time to think about selling a business was the day after starting or acquiring it.  Many decisions can be made in the early days that will make selling easier and more profitable.  Waiting too long to prepare your plan for selling may close out options that might have made it a better sale.

One option that you have in the franchise business that you don’t have in other businesses is that you know a number of people who are already in the business who might be very interested in acquiring your franchise, the other existing franchisees in the system!  Often successful franchise operators use acquiring existing franchisees as their strategy for growth. In some franchise systems there are very large franchisees who have been successful and who are always looking to acquire more franchises.  These buyers are already known to the franchisors and have experience to take over your franchise and operate it efficiently from day 1.   

3. Close it down

Of course with any business, there will be certain situations where it makes the most sense to close up shop. From changing customer demographics to a lack of potential buyers, there are a number of reasons why you might decide it’s best to close down your franchise for good.

As with the other exit strategies, closing down your franchise will come with its own set of issues from what to do with your employees to whether you need to think about selling a piece of real estate. In the event of this situation, it is important to make sure that you have a plan in place from the start because you just never know what might happen. Business is risky, but that doesn’t mean you should let the thought of an exit strategy get in the way of achieving your dreams. Just think about it as making sure all of your bases are covered.

Consult with an experienced business law attorney

Before deciding what exit plan strategy is right for you, and certainly before executing one, it’s a very good idea to speak with an experienced business law attorney. With the help of your lawyer, you can make sure not only that you have considered the best exit strategy options, but that the plan itself will be clear, concise, and executed properly.

At the Wilson Law Group, we regularly help budding business owners, many of whom are veterans, get off on the right foot—and that includes coming up with solid exit strategies. If you are in the process of purchasing a franchise, or already own one, please don’t hesitate to contact us today at 804-864-5268!

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Wilson Law Group

Jim Wilson is the founder and principal attorney of the Wilson Law Group. For the past 25 years he has been combining legal dexterity with an entrepreneurial mindset to help aspiring and established business owners start, finance, buy, sell, and run their companies.

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