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Plan Your Exit With The Help Of Your Franchisor

Franchisees have a shelf life. Theirs is a life cycle influenced by various factors which will bring them to the selling decision, including the length of the Franchise Agreement, their own age, their profitability and possibly boredom. For the vast majority of franchisees the concept of planning for the final part of this life cycle is alien to them. When joining they are taking that big step into the unknown and trusting their franchisor partners with their futures. This is an ethical responsibility that most franchisors accept as one of the joys of franchising.

It is important to recognise, for most franchisees, that they buy a business once in their lives which is an emotional experience and sell it once in their lives which can be an even more emotional experience. The euphoria and energy exhibited when franchisees sign up, graduate from training courses and launch their businesses is often dissipated during their lifetime as a franchisee so it is hardly surprising that the same care and lightness of touch employed to bring them into the business should be used to help them exit. When joining they are taking that big step into the unknown and trusting you, their franchisor partners, with their futures. This is an ethical responsibility that most of us accept as one of the joys of franchising.

Going however seems to be a different kettle of fish. Some franchisors either abdicate their responsibility to assist with a sale or occasionally become so involved that it costs them money, in terms of time and absolute cash, for their franchisees to sell up and depart. Resales are, in many franchised networks, an annoyance that can cause friction, dispute and discord with franchisees. Positions become entrenched and skirmish lines are drawn over topics such as valuation, sourcing purchasers, fees payable and all the other elements of the minefield that is the process of managing their exit. A total hands off approach doesn’t work either as this is just abdicating responsibility for the structured development of the network. With a hands off approach there is a loss of control of who is joining and how the brand is being promoted, or not, in the marketplace.

A nightmare – no; a challenge – yes, but one that can be overcome and even turned to advantage through detailed planning and following a structured system, involving the franchisees in their own forward planning. Establishing a franchise resales culture within a franchisors network should, in my view, be high on the agenda of any right minded franchisor.

Creating a resales culture is about taking the mystique out of the process because this reduces fear. Clarity removes uncertainly and clear communication with franchisees enabling them to have open discussions about leaving eventually helps create this resales culture.

I mentioned the word fear and that is deliberate. People are scared or concerned about what they don’t understand and given the fact that most franchisees only sell a business once, they don’t understand how to approach it or what the process involves. It is important not to underestimate this emotion because it is at the root of most of the angst that can occur in resales discussions between franchisors and their franchisees.

The way to overcome any friction is to set out the resales process from day one. Your entire resale process and its associated documentation should all be documented in a “Guide to Selling your Franchise” and this document ideally would form part of your Operations & Procedures Manuals. This means that from day one, when the franchisee joins there is, within the documentation they receive, a description of the process of how they leave. Yes the cynical view is that Ops Manuals are never read, but the point is they are read at least once and it will register that there is a process in place which can be referred to in the future. They may not have instant recall about the detail but the knowledge will be there that such a document and process exists.

The second step, which in a timeline occurs before they get the manuals, is to discuss selling as part of the recruitment process. If, whilst you are discussing your opportunity with prospective purchasers, you can show you are not only interested in bringing them in – with all the attendant support processes etc. - you are also supporting them at their exit and can demonstrate a life cycle for them. This surely will encourage even more prospects to want to join your network.

This discussion also provides the opportunity for you to talk about the way to increase the value of your franchise opportunity by adhering to the operating processes and actively driving the business through the implementation of your marketing activity. An additional benefit is that this discussion enables you to demonstrate the value of joining your network. You can show the value of the business into which they are buying is not just about how much they can make in drawings each year but that it is about the totality of the income generated through the franchise as they grow the business. This includes drawings, re-invested profits and eventual selling price – a fully rounded offering.

This initial discussion and supporting detail in the Ops Manuals can’t be the end of the process however. To truly create a culture that is accepting of the resales process and one which will accept the need for a structured exit as well as induction, it is important to maintain the subject as an on-going discussion. Clearly this is not to be the key topic at all meetings but to include Exit Planning Seminars – delivered either by yourself or using an external facilitator – at, say, annual conferences or Regional Meetings from time to time will keep the franchisees focussed on the end game.

If your franchise has business support people who work with the franchisees on a one to one business planning basis it is important they also understand the resales processes and especially what are the key levers within your industry sector that will drive profitable growth. By encouraging franchisees to focus on their end game and grow from $X profit to $Y profit over a number of years to achieve $Z selling price, it means growing the sales from $A to $C. To do this they need to implement these (1, 2, 3, 4) marketing and sales initiatives and lo and behold there is a growth in the franchisees business.

This is mutually beneficial as their growth also means you, as the franchisor, receive increased growth in fee payments. It is this combination of mercenary thinking and individual coaching that combines within an effective resales culture. This creates a classic win-win situation for both franchisee and franchisor.

Creating a resales culture in your network and focussing all franchisees on the strategy for their eventual exit will bring mutually beneficial growth. Surely that is what this symbiotic relationship is all about. This gives the franchisor control from day one and manages the expectations of the franchisee about what they have to do to achieve their own goals. It also ensures that the risk of any ‘sudden surprises’ in terms of unexpected franchise resales are minimised.

Open discussions about the eventual sale of their businesses at regional meetings and conferences will also keep this mutually beneficial focus. I have often spoken at enlightened franchisors’ conferences so that rather than broaching the topic themselves, with the attendant risks to existing relationships; they can use an external specialist to provide guidance and perspective to the discussion.

Selling a business is about planning, more planning and constant consistent managed communication. It is this which smoothes the path for the successful completion of a franchise resale.

DJS 4/15

Author - Derrick Simpson has been working in Franchise Resales for over 20 years and is a leading authority on the subject advising Franchisors with their resale strategies. Working as a franchisor for several years has given Derrick the insight to the necessity of having a system and strategy in place to make franchisees' exit work profitably for both sides.

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