The Importance of a Franchise Exit Strategy

You’re about to sign on the dotted line to become a franchisee after finding a brand that’s perfect for you. You are bursting with enthusiasm and excitement to launch your new business and can’t wait to see it grow into a huge success. But stop there. Have you thought about your franchise exit strategy?

Being asked to consider a plan to exit your franchise business before you’ve even started it may sound odd, may be the last thing you want to think about, and may also come across as more than a little pessimistic. However, thinking ahead and having a plan on how you will exit the business in the future is an extremely positive step and can help a franchisee achieve their long-term business goals.

There are many different reasons why a franchisee will come to a decision during their business trip to move forward and terminate the franchise agreement. This could be for personal reasons or ill health, retirement, relocation or the desire to pursue another opportunity. It can also be the result of a deterioration over time in the franchisor-franchisee relationship or dissatisfaction with the brand. A franchisee may try to sell the business, have a succession plan, or decide to end the relationship.

Before signing a franchise agreement, a prospective franchisee should carefully review the clauses related to terminating the franchise relationship. The sale of a franchised business by a franchisee to a new owner differs from the sale of an independent business in that it requires the approval of the franchisor to proceed. There will also be expenses and fees to be paid to the franchisor at the completion of a sale and it is important to know how much these will amount to under the terms of the agreement. There will also be clauses in the agreement that cover a scenario where the franchisee dies or becomes incapacitated, and what fees are payable if a franchisee decides to simply close the store and terminate the franchise agreement early.

An understanding of the various options available to divest the business from scratch will enable a franchisee to formulate their ideal exit plan. And how can having an exit plan from the start be a good starting point for business success?

An exit plan provides an end goal and something to strive for. This can then help the new franchise owner set long-term business goals to work towards, such as hiring team members who can eventually take over the business and a specific growth plan to build the business to a certain financial position. It can help the franchisee develop and maintain a growth mindset, reminding the franchisee that their franchise business is a valuable asset that should be nurtured and developed. And having an exit strategy also means that the franchisee can determine the right time to take steps to execute those plans – and is also psychologically prepared in advance to move away from the business in which he undoubtedly has a lot of passion, time and energy. has stabbed. and effort as a financial investment.

Like any plan in business, a franchise exit strategy should always be reviewed and changed as circumstances dictate. But having a strategy for exiting the franchise business as they begin the first steps of their business journey should enable the franchisee to maximize the value of their franchise and return on investment when they are ready. .