Why You Should Plan Your Exit Strategy
Savvy business owners who get into franchising buy their businesses with a long term plan in mind. They know that down the road they will sell, so they make necessary preparations to sell by a certain date and for a certain profit margin. This involves having an exit strategy in place.
An exit strategy is a set of methods and criteria that you will use to get out of a business by a set date and with a projected amount of money. The thing is, too many people buy a small business without an exit strategy in mind. Several years down the road, they might find themselves scrambling to come up with a plan. Avoid this sticky situation by looking to the future and mapping out your exit plan at the start.
What Goes Into an Exit Strategy?
You must set targets. By what date do you want to sell? How much do you want to sell it for? How will you meet financial objectives over the next 5 to 10 years? An exit strategy is much easier to pull off if the company is thriving, so if you can’t meet those income targets how will you make up for it? You need to have a plan B in case things don’t go as planned.
When it comes to selling your franchise, you’ll need to know what price to ask for to obtain the target return on investment. Consider all the fees involved in selling. This includes transfer fees, brokerage fees, lawyer fees, and the cost of getting your business valuation done by a qualified accountant. Taking all of these things into account will allow you to get the best price possible on the market.
You should also take care of all the due diligence items before you start to sell. This means making an information package for prospective buyers. Having this ready to go will make the selling process a little quicker.
How Will You Transition Out?
There are numerous ways that you can exit the business, and it is not just limited to selling the company. Maybe you would want to hand it over to a family member, or perhaps you want to switch roles and become a consultant instead.
If you want to hand it down to your kids, you’ll need to talk with your family first and make sure they actually would want to take over the business. There is no point in forcing them into it, and you’d be better of selling to someone else if they don’t want to.
If you do intend to sell, you’ll have to focus your time on building a successful business that people will want to buy. Some franchisees make the mistake of not thinking up an exit plan until their company is failing. When this happens it is a lot harder to find a buyer.
Always prepare for the long haul. Keep these tips in mind and develop your own exit strategy so when the times comes to sell, you’ll be ready.