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Why Your Exit Strategy Is Important.

The term ‘Exit Strategy’ is defined as: The methodology that a business owner intends to use to get out of an investment that he or she has made in the past.

For so many franchisees today, the notion of a planned tactical approach to ‘cashing out” is often an after-thought once they have been running their small business for a while. In today’s market, many of those franchisees thinking about their exit strategy are considering it because they are struggling. Even if this is not the case, having a plan in place including “end game” goals, process and steps needed to achieve those goals and finally, an initiative to trigger once you are at the final stage of exiting, via selling their enterprise, is a necessity in order to transfer ownership smoothly.

Let’s face it. Most franchisees buy their business with great hopes of success and are likely thinking they will build it up and sell it for a profit. But in reality, these thoughts go by the wayside when the reality hits of the day-to-day grind of running the business.

In the event the business is profitable, the process of planning an exit strategy at the “eleventh hour” is of course much easier…as it involves simply putting into play a “to do list” in the short term, that includes all the ‘house-keeping’ tasks of being up-to-date on all requirements and upgrades etc. that are required by the Franchisor, and understanding the costs involved ( like the transfer fee and a brokers success fee) . Another possible cost could be the purchase of an Opinion of Value. This will provide the seller the knowledge needed to confidently price the business to efficiently sell for the highest possible sales price in the present market.

The other time-consuming, but relatively simple task list, includes pulling together the most up to date and comprehensive due diligence package that you will need to share with all perspective and qualified buyers. If this is done BEFORE going to market it can take the headache and stress out of moving a transaction forward once you start qualifying buyers.

So we covered the most obvious tactical steps….even if you are not cashing out as part of a long term goal being met… but again the most important part of the exit strategy is by far the planning phase in the very beginning.

  • What do I want out of this endeavor?
  • How much do I need to sell the business for in order to meet this objective?
  • What do the next 3, 5,7+ years need look like in order to achieve this?
  • As you get close to your “planned exit date”…and your financial objectives are not met…..What is a counter balance to this unmet goal? Perhaps you decide that you will finance the incoming buyer and earn in interest in lieu of a higher sales price.

We have only touched on a few things to think about regarding planning an exit from business ownership, but this short exploration certainly underscores the idea that having an exit strategy whether you are ready to sell or not….. is in your best interest in the long term.

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