Tips to achieving a smooth exit strategy
Whether you are a franchisor or a franchise owner, you should plan an exit route whether by a successful sale or otherwise. You need to consider how you propose to realise the rewards for all your hard work and investment. Edward Savory of Leathes Prior Franchising Team provides some tips, which will assist you to facilitate a successful, and profitable, exit strategy.
Plan your exit
What is your preferred timeframe? How much money do you need to make the exit worthwhile? Do you have anyone in mind to take over from you, such as a family member or existing management?
Prepare your business for sale
You will need to provide a prospective buyer with the recent financial history of your business. Run your business in such a manner so that the accounts enable you to maximise the sale price. For example, being able to show consistent growth is likely to prove advantageous.
Prepare for due diligence
For any exit to take place, a degree of due diligence will need to be carried out on your business. Being organised will ease the due diligence process significantly and save adviser fees. So, keep records up-to-date in an orderly manner.
Take the skeletons out of the closet
The chances are that your business may have a skeleton or two in its closet. Any diligent buyer will soon uncover any such matters that could provide them with tools to negotiate down the sale price. A stitch in time does so often save time and, importantly, money. Make sure your business is squeaky clean.
Take professional advice
You should take advice, from a franchise consultant, franchise resale specialist and/or corporate finance broker as well as an accountant (to advise on tax) and a solicitor (to ensure that the transaction is properly documented and that you are fully protected).
Investigate the buyer
In order to have the best chance of knowing whether you have found the right buyer (or investor) you should carry out your own investigation. Do they have the funds? What is their timeline? Take time to meet face to face. Remember, you can pull out at anytime. It is your business and you can sell it to whoever you want, whenever you want and upon whatever terms you want.
Tips for franchisors
Ensure your documentation is well drafted and up-to-date
All of your documentation (Franchise Agreement, manual, terms and conditions, employee and customer contracts) should be professionally drafted and updated regularly. Having well drafted, up-to-date documentation in place will enhance the value of your business and demonstrate to any prospective purchaser that your business is well managed and organised.
Check the status of your intellectual property
All of your trademarks should be up-to-date, registered and owned by or licensed to the franchisor company. If a founder is the actual owner of the trademarks then you should put a written licence in place between him/her and the franchisor company.
Consider all the options
In the context of exits there really is more than one way to skin a cat. As well as a simple sale, there may be an opportunity to exit via some form of management buyout or investment. You will need to identify prospective buyers and carefully consider how to approach them. A franchise resale specialist may already have some leads. You are likely to want to keep the search for a buyer confidential, so ensure that a formal confidentiality agreement is entered into with a potential buyer before agreeing to disclose any information.
Tips for franchise owners
Review the Franchise Agreement
As a franchise owner, you are unlikely to have the ability to terminate your Franchise Agreement and, therefore, a sale is usually the only viable exit route. Ensure that you have carefully read and understood the provisions in the Franchise Agreement covering the sale of your franchise. The process and the costs are usually expressly provided for and such procedures will be followed very closely.
Engage the franchisor and take independent advice
If you, as a franchise owner, are looking to sell your franchise, then consult with your franchisor at an early stage, as it is likely to be in a good position to assist you in finding a buyer. Remember, your interests may not be totally aligned with that of the franchisor, so independent advice could be invaluable in order to ensure that you achieve the best deal for yourself.