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Tom Spadea's blog
Franchisors many times don’t think about franchisees exiting their system as the opportunity that it really is. Without a formal resale program in place, franchisors can be at the mercy of local business broker, real estate brokers or landlords for the continuity of their locations. When a franchisee is looking to exit the system, they should be embraced and helped in their exit strategy. Many franchisees who want to leave the system are no longer putting forth the effort they they put forth in the first year they opened their doors. By helping a new franchisee take over the location, they can reinvigorate the market and increase their royalty stream from the location. If they aren’t careful, the location can flip to a competitor or just close.
Franchisees should be told that leaving the system is part of franchising and they can help with the transition that will enable them to get a fair purchase price. This is especially true for franchisees that are in trouble and behind in debt or rent payments. By coordinating the efforts and negotiating with the banks and the landlord a potentially disastrous situation can be turned into an opportunity. Read more »
This is one of the most important and difficult questions for any business owner to answer. The value of a business is based on its future cash flow, which usually can be predicted from historical results of sales and profitability. Buyers don’t care how much you spent yesterday, they care how much they can make tomorrow. Ultimately your business is worth what someone will willingly pay. A common mistake owners make is that they believe their business is worth what they have invested in it, that is rarely true.
If you are a franchisee, you are part of a system and usually are not so unique to lack comparable statistics. Talk to your franchisor to see if they have historical data on what other units have sold for. You also can see if other units in your system are listed for sale and what their asking price is relative to their revenue and profitability. Read more »
Unless you already have a buyer, such as a fellow franchisee, a key manager, or a family member, then you should use a business broker. And even if you have a buyer, it may be helpful to still hire a business broker to expand the universe of those interested in your business and to confirm that you are getting a fair deal. The law of supply and demand applies to businesses as well. If you have more buyers (higher demand) you should be able to command a higher asking price. Brokers have specialized knowledge and experience dealing with multiple transactions a year, where you may only sell a business once in your life or only a handful of times.
In addition, don’t underestimate the value that a broker provides by acting as a third party intermediary. They will screen unqualified buyers and help the serious buyers understand your business better. Read more »