Franchise Exit Strategies: Sell, Renew, Transfer or Walk Away?
Many franchise owners, when signing up, only seem to think about the immediate benefits of joining the franchise network, but not many franchise operators stop to take a minute to visualize what their perfect exit strategy would look like. There are many reasons why a franchisee will exit a franchise. The main reasons for this are usually but not restricted to retirement, changing personal circumstances, financial considerations or simply a desire to pursue a new opportunity. This is why having a franchise exit strategy in place should be on the checklist for any new franchise owner. Business owners who have taken the franchising route generally have four exit options. These include: selling the business, renewing the franchise agreement, transferring ownership or walking away. Each option has different financial, legal and practical implications.
Sell The Franchise
Listing your current franchise as a resale opportunity can be very satisfying for ex-franchisees as it will allow them to finally realise, after all those years of hard graft, what they actually brought to that business when they assess its market value. This is why a successful and profitable franchise will usually attract potential investors to its resale opportunity fairly quickly. However, the sale will require approval from the franchisor, and the prospective buyer may need to meet specific financial and operational requirements. Franchisees should also review their agreement carefully to understand any transfer fees, restrictions or conditions that could affect the sale.
Renew The Franchise Agreement
Renewal of your franchise agreement may be a good idea depending on whether you think the franchise business currently operating in your local region has potential for further growth. Renewal can provide continuity and avoid the disruption associated with selling or closing. However, it is important to note that renewal conditions may be entirely different than the original options stated in your original franchise agreement from when you first joined the franchise. The franchisor may introduce updated fees, conditions, territories or operational requirements. Existing franchisees should thoroughly study all the new terms and conditions within the new franchise agreement presented to them to make a wise decision as to whether the business remains commercially suitable before committing to another term.
Transfer Ownership Of The Franchise
Depending on which franchise you decide to invest in, there are sometimes options to transfer the franchise ownership to a trusted third-party such as a family member, investor or close friend to run the day-to-day operations for you. This option can provide continuation of your franchise while allowing the existing owner to take a back seat from the day-to-day business procedures associated with being a franchisee. Again, you need to understand that the transfer process will heavily depend on the franchise agreement you have with the franchisor’s and their requirements regarding new franchise owners. Legal and financial advice can help ensure that ownership changes, liabilities and contractual obligations are properly addressed.
Walking Away From The Franchise
Depending on the circumstances, sometimes franchisees may find walking away from their obligations connected to the franchise business is the most fitting option for them. This could involve allowing your current franchise agreement to expire, negotiating an early termination with your franchisor or simply closing the business. However, please note that merely halting operations may not end contractual obligations. Franchisees should understand termination clauses, outstanding debts, employee responsibilities and potential fees before taking this action.
On a Final Note
As a franchisee, it is important that you choose a franchise exit strategy which would suit your needs best and an exit strategy that would align with the franchisor’s terms and conditions. Whether this be selling, renewing, transferring or walking away from the franchise business entirely, each of these options can be appropriate depending on your personal state of affairs. Meticulously examining the franchise agreement ahead of time, soliciting professional advice and preparing well in advance can help franchisees make an informed decision and maneuver a streamlined franchise leadership handover.
