‘Exiting’ has a bad rap. In franchising, we often hear about chaotic relationship breakdowns and the damaging impact this has on brand reputation. But what about the successful exit of a franchisee? Let’s put the spotlight on that for a change!
The bottom line is: every franchisee should know their exit strategy from the moment they enter the business. Many people choose to buy a franchise for the lifestyle and support, but for both investors and owner-operators, the focus should remain the same: how can I build this asset and increase ROI? Whether the franchisee is in the system for 5 years or 25 years… there will always come a time to cash in the chips.
So, for the franchisor, what can you do to prevent the chaotic breakups, and help your franchisees exit smoothly and successfully?
Like many areas of franchising, we have to dial back to the recruitment process. Many of the unsuccessful outcomes we see go down in the first 6-12 months of a franchisees lifecycle can be attributed to a poor recruitment process. Cultural alignment used to be a guessing game for franchisors, but now we know that detailed profiling is the antidote to this.
For the franchisors that have a poor fit franchisee already within the system, a messy exit can be mitigated by being proactive. It may seem obvious, but the first step is to do everything in your power to get into the business and help the franchisee succeed. Hopefully, you will have a detailed plan of action for this in your Operations Manual, including a strategy whereby management can step in and take over if need be. Having specific benchmarks mapped out in your Franchise Agreement will also give you the power to take action if a franchisee fails to meet them.
Instead of burying your head in the sand, as many franchisors do in these circumstances, facing the issue head-on will prevent things from turning sour. In the same vein, having the conviction to decide that things are not working out with a franchisee, and simply never will, is an important step in protecting the value of your brand.
So, we’ve covered the negative, but what about the positive? Let’s say you have a franchisee who has performed well over the years and is now looking to cash in their chips, how can you help them do this quickly and effectively?
The first step is to get them sale-ready. Having a network-wide strategy for collecting financial information is a huge help in this process, as the buyer will need to conduct their due diligence. In some Australian states, a Section 52 statement must be prepared to go with this financial information. In your system, there should be a documented transfer process for the franchisee to follow, aided by an existing relationship with a business broker.
Having a trusted broker to help with this process is invaluable. Not only will they market the sale and find the right lead efficiently, but they also take care of the whole pipeline: application review, vetting, confidentiality agreements, finance, lease agreements, and landlord approval. If there is an opportunity to advertise the sale within the network, having a broker at arm’s length can alleviate the discomfort of this process, for example, having to reject an application from an existing franchisee. With a detailed understanding of your brand, a broker will also help to ensure that resale marketing follows your brand requirements. Their knowledge of market changes and the resale process is also vital in getting you the right deal, quickly and efficiently.
Throughout the franchisee lifecycle, there are plenty of opportunities for franchisors to build a smooth and successful exit for their partners.
During the onboarding phase, it’s important to set up franchisees with a detailed business plan and budget for each and every year. Onboarding is also the perfect time for an open discussion about succession planning, as this will put the focus of the franchisee on building the asset from the get-go. Strong, network-wide reporting systems will complement this planning, as franchisees will be able to see how they are tracking alongside others in the network. Our final point here is to have the right support staff in place to help your franchisees throughout their journey.
As a franchisor, it’s common to distance yourself from the exit of a franchisee. We’re flipping this on its head. Getting in early to frame the direction, provide quality support and resources, and execute a smooth exit strategy will not only benefit the franchisee – but your entire franchise system.
If you need assistance with any of the above, don’t hesitate to reach out through the form below.