Preparing your franchise for sale as a working network
A hot topic at this year's BFA Annual Conference was how franchisors can most successfully pass on the reins of their businesses and realise a lifelong dream of financial security and a place in the sun. Tony Urwin of FDS Northern offers his advice on preparing for a fabulous departure
It's never too soon to start thinking about exiting your business. Many franchisors have built their businesses from scratch, often starting off as sole traders operating in a local market and slowly developing the brand into a national franchise success.
You will have put a great deal of thought into preparing your business proposition for sale as a franchise package. You should also consider how you will prepare your franchise for sale as a working network.
Consider from the outset the elements of the business that will attract future potential buyers. The obvious one is a strong regional or national network of profitable, happy franchisees. Avoiding litigation with franchisees is crucial, and at the heart of this should be a robust legal agreement that is fully explained to each new franchisee as they sign up.
It is also strongly recommended that the business accounts are kept as transparent as possible year on year. You should avoid taking advantage of tax loopholes that would effectively remove cash from the bottom line including long haul 'business trips or a luxury vehicle for the Director. It may seem to be tax efficient at the time, but remember that a potential purchaser will only place value on the actual profits shown. In the long term, creative accounting could knock a significant amount off the achieved total value of your business.
One of the most difficult challenges to overcome when putting together a long term exit plan is making the business founder dispensable. It is essential that you invest in suitable layers of management to take over the day-to-day running of the business. This can be especially difficult if you are perceived as being the main company spokesman and, therefore, the 'face' of your brand. However, releasing the reins of the business at some stage is vital to its future saleability.
You should try to keep an open mind when assessing potential buyers and there is no harm in keeping a look out for a company or group of individuals who could be interested. Recent sales have been to a diverse range of people: competitor takeovers, venture capitalist acquisitions, management buy-outs and franchisee takeovers. It could be argued that you have a moral responsibility to pass on the business to people who will continue to nurture the brand and the franchisees as you have done. This is a commercial decision, however, and your franchise agreement should offer sufficient protection to franchisees in the short to medium term.
For most franchisors, selling the business is an inevitable stage in the growth and development of the brand. You owe it to yourself and your franchisees to be fully prepared for a rewarding exit.
If your business is in the North of England or Scotland, call Tony Urwin today to find out how it can achieve its franchising potential.