Selling your business

Feb18_2016
18
January
2016
Franchise Basics

Smart franchisees orchestrate their exit strategies meticulously, from the overture to the finale.   They devise a personal business plan, plotting when and how they want out.  In this way, they can continue to have one foot firmly in their franchise while the other foot is inching out the door.

It makes sense to begin preparing several years before your target date.  You’ll want to take steps to boost the value of your business – and doing so takes time.  You also need to investigate and then select an appropriate sales vehicle.   Once you put your franchise up for sale, it could get swept up right away, or it could take weeks, months, or even years to sell.   You also have to insert another element in the timeline; the franchisor, who gets a voice on several items before the deal is done.

The word on the street is that 20 percent of companies on the market sell right away.  The other 80 percent don’t, because they’re overpriced or the owner didn’t get the company in shape.  So start preparing – and good luck.

Selling a franchise is very much like selling a house.  Obviously, you don’t have to light a fire in the fireplace or fill the air with the aroma of freshly baked apple pie.  Still, you want to make your business look, feel and be its best before potential buyers cross the welcome mat.  What you put into the selling process affects what you’ll get out of it.

The first place to start is with your finances.  There’s no question that a prospective buyer’s biggest concern is your bottom line.  Is your business profitable?  The only way anyone knows for sure is if your books are in tip-top shape – clean enough to pass the strictest military inspection.  Give yourself at least three years lead time to start keeping accurate records.  Your books should reflect only the business’s true expenses and revenues.  Set up your records by using generally accepted accounting principles and consider including audited annual statements.  Try to settle any financial obligations, liens, and claims or lawsuits from suppliers, customers, or other parties.  Also talk to your accountant and attorney this far in advance for financial planning purposes – such as setting up charitable trusts so that you don’t get slammed in post-sale taxes.

Have other papers in order too.   Prospective buyers see value in such things as business plans, employee records, supplier contracts, operational diagrams, and of course, organized franchise support materials.  Keep all your operations and training manuals as well as any additional information that may come in handy – such as materials from seminars or conventions, survey, the title, and environmental information.

Next, cosmetic changes may be in order.  You should already be in good shape because you’ve had to meet the chain’s standards all along.  Still, any business could probably use some spit and polish in some nook or cranny.  Be your own worst critic; attack things that a customer – and therefore a buyer – would see.  Low-cost, routine maintenance pays off here.  You may want to get new blinds, paint some walls, and straighten the pantry.

Bigger investments take more thought.  For example, should you upgrade equipment or remodel to meet current standards, or should you let the new franchisee deal with – and pay for these requirements?  Will your investment or noninvestment impact the sales price or the sale?  The answer depends to some extent on how far in advance you’re starting to spruce up (will you benefit from the improvements before the sale?) and the extent of the franchisor’s requirements upon transfer.

Now is no time to put blinders on.  No matter why you’re leaving, rev yourself up and continue to build the business and operate in a way that maximizes value.  Make sure that your employees are performing, pay attention to customer service, keep inventories well stocked, and continue marketing to bring in new customers.  The more business-as-usual, the better chance you have of selling.

In the end, much of your preparation work in buying a franchise pays off when you’re selling.  Site selection was quite a chore, right?  Here’s the payback.  Many buyers consider physical location a primary factor in determining value.  Real estate leases that have several years remaining and renewal options are selling points; leases on, say, obsolete equipment are not.  Remember the amount of time you spent on employee training?  Perhaps the prospective buyer is so impressed that she wants to keep some of your employees.  And how about your devotion to customer loyalty?  Supplying the new owner with an organized data bank of customer names give her a head start.

Finally, you can sweeten the deal to make your business worth more at resale.   One legitimate concern of a buyer is whether you plan to open a similar business nearby in the near future.  His wheels are spinning, figuring that you can easily duplicate your success – and potentially cut in on his turf.   The point is moot if you’re bound by a noncompete agreement with your franchisor.  Otherwise, calm the buyer’s fears by striking your own noncompete deal.  You might also offer some type of financing arrangement or help train the new owners for a specified period.  These latter conditions tie you to the business a little longer, but if they help you get where you want to go, do it.