Franchises - Exit Strategies

At an International Franchising Conference in London, Peter Holt ready-made the bold statement to his audience of Franchisors that they needful to understand that their business would-be fail, and in fact all businesses are bound for failure. Gratuitous to say, there were a few aghast faces in the crowd. He was devising the point that it actually is just a matter of the number of calendar flips before time equine distemper any business. It’s a hard point to argue once you think that the Neanderthal Fortune 100 enclosed Barney’s Archosaur Obedience School. Not a lot of money in that these days.

Evolutionary change would-be seem to indicate that we should all prepare for failure. Of course, if we do an extremely nice job, possibly our grandchildren’s grandchildren have the problem, and we can rest easy in the hammock for now. In a more much practical view of the calendars we get to flip ourselves, we should think just about creating a booming Franchise business, maximising the value, and realizing the optimum return with an appropriate exit strategy.

The folly often lies in not considering this part of the equation at the really time that you are considering entry into the Franchise in the 1st place. That’s exactly the time once you need to give significant consideration to the value of the plus that can be created. In progress profitability, cashflow, and emotional fulfillment, are all important criteria in the process of devising an abreast of business decision just about becoming a Franchisee. But then so is the growth of the plus value you create, on with the ease of realizing that value at the time you intend to exit.

Snagglepuss always knew it was ‘exit, stage left’, but that is not always so clean in the operation of a Franchised business. What is clean is that several dedicated thought inevitably to be applied at the time of entry so that appropriate strategic planning is put in play. Let’s consider a simple example to illustrate the importance of this consideration wherever you can increase the value of the business by $200,000 in five years, and there is a available and willing market for the business at the end of that time. A straight-line application of the value increase, without considering the time value of money, would-be indicate that the real average annual earnings would-be be $40,000 over and above the net financial gain of the business.

That should tell you that a business that earns $80,000 per year in profit mightiness actually be a better investment than a business that does $100,000 per year, if the latter has importantly less realizable value at the time of exit. If the plan is succession to family members, then again, the value of the plus to be transferred is of overriding importance, and not just the annual income.

Of course the temporal arrangement of exit or liquidation will carry significant weight, and it’s not always in our control. Gilligan’s partnership share of Skipper’s Cruise Lines would-be have been more much valuable before he met Thurston and Lovey. That would-be indicate that we shouldn’t put the hen’s product all in one wicker carry case. The consideration should include several in progress profitability, as well as ultimate plus value at the planned time of exit.

The value of planning can’t be overstated. The Allies didn’t just decide to go for a boat ride across the English Channel to Normandie one sunny afternoon. The Miami Dolphins didn’t win three Super Bowls in a row in the 1970’s because they won the coin toss. They even as withstood the ill-famed Garo Ypremian foibles, because their plan was tight and well executed.

It surely does sense that a tight, and well executed, business plan would-be include several the profitableness of the venture, and besides the ultimate cash value at the end of the rainbow. The Franchisor should be able to provide you with pertinent information just about plus growth, and the factors that will affect transition. If they are unwilling to discuss the matter, the resolution is simple – run!

All nice Franchisors should be looking for Franchisees that will to maximize the value of their business with a well set out plan. That will only enhance the value of the Franchise system as a whole, which increases value for each individual stakeholder. For the Franchisee, it actually should be a significant attraction to become involved in the business in the 1st place.

The Twenty-first century bourgeois is the spawn of corporate jinks and technological advancements in today’s worldwide marketplace. What mattered in the past is not important now, including individual employees, whole departments, and entire processes. The new enterpriser inevitably to control their own destiny, and will not place their fate in the hands of others. They will not risk Mr. Dithers handing them a pink slip. They believe that assessable risk is required to earn fiscal freedom. They besides understand that the proper equation to assess risk includes several current profitableness plus long-term plus creation.

Of course, there must besides be emotional attachment to the business at hand in order to optimize value. If the plan is to grow the business to maximize value, and there is emotional commitment to that plan, the results can be dramatic. How important is emotional attachment? I’ve stayed in hundreds and hundreds of hotels, and yet I’ve ne'er seen anyone clean the toilet in their room. There’s just no emotional attachment to the asset. I’ve ne'er seen anyone wash their rental car either. Nurturing, prodding, improving, adjusting, and building, all take commitment in order to be the creator of the ultimate value.

Like a old world monkey picking fleas, each business chance has to be examined carefully. The plus value of several service-based businesses will often hold value, and in fact increase in redeemable value as each new client is accessorial to the business. The exit strategy of a retail location should include an assessment of the initial investment required, real estate values, competition, and demographic factors. The history of increases in Franchise Fees should besides be considered to predict futurity minimum remove value.

I full-fledged a nice case in point just about Franchise Fees. In 1972, a nice friend and I distinct that March break was better spent at Daytona Beach, as all nice first-year college students conclude. We found this new eating house there that had line-ups about the block - literally. It was called McDonalds. Once we returned to campus, we went to the library to do several research because we were told that McDonalds mightiness entertain building one more eating house for the right person. The cost at the time was $25,000. If we could have patterned out how to raise the money, we would-be have become partners in a McDonalds Franchise, and my bet is we would-be have at least doubled our money.

Portability of transfer, able & willing marketplace, skills & training required for entry into the business, and foreseen brand value at the time of anticipated remove are all part of the equation. Flexibility of the Franchisor to address new market opportunities will create new markets for the Franchise. In addition, expansion plans of the Franchisor need consideration. Static doesn’t cut it. A plan to continue to bring in new and vivacious Franchisees well into the futurity will increase brand value, and nurture the market for the product or service of the Franchise system.

O.K., I didn’t say it would-be be easy to assess. There’s a lot to think about. What I am expression is that it would-be be foolish to avoid the issue. The temporal arrangement of exit may be 10 years down the road, or 15, or even as 25, but at the really least, it should be considered as a part of a long-term strategic plan. Daniel Hudson Architect aforesaid “Make no little plans; they have no magic to stir men’s blood.” So plan. Plan to profit. Plan to nurture and build. And plan to exit.

The factors listed above must be assessed and graded in order of importance before understanding the true value of the anticipated business venture. The maintenance and growth of plus value, as well as movability on remove will ultimately determine the real return on investment.

Even although Barney was on the haemorrhage edge once he fabricated the archosaur biscuit to reinforce nice behavior, his target market ultimately went with the cats and dogs option. Of course, there wasn’t a big market for VoIP and Blogs in that digitally disadvantaged age, once zeros and ones referred to the near death experiences of that particular day. Oh yeah, and it wasn’t that long ago, once McDonald was an old farmer.

The real message is that Barney should have had a plan to find a purchaser before Rin Tin Tin and Sylvester showed up on his neighbor’s doorstep.

About The Author

Dennis Schooley is the Founder of Schooley Mitchell Telecommunication Consultants, a Professional Services Franchise Company. He writes for publication, as well as for schooleymitchell.blogging,com and franchises.blogging.com, in the subject areas of Franchising, and Technology for the Layman. http://www.schooleymitchell.com, 888-311-6477, dschooley@schooleymitchell.com.