Ending a Franchise: 7 Tips on How to Exit Gracefully
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Even the most successful franchise experience can only last so long. A time comes when a franchisee wants to sell the franchise and move on to a new project – potentially into retirement. A franchise can be transferred or sold like any private business, but it requires even more research and work on the part of the franchise owner. Mistakes or misunderstandings can make this process ugly and disruptive, so prepare well but studying your specific contract and the steps you need to take to make a graceful exit.
1. Understand Your Termination Clauses: If you study your contract with the franchisor closely, you should find plenty of information about termination. Start by finding out what is allowed and what it not. Does the company allow you to transfer the franchise whenever you want, or do you have to fulfill your current obligations first? Can you keep your customer lists for a new business? Are there any non-competition clauses that prevent you from moving over to a similar business? This is all vital information when you sit down to plan your exit.
2. Provide the News ASAP: The sooner that you notify your franchisor of your plans to leave the franchise, the more smooth the transition will be. Many steps take time to work, sometimes months or longer. Let all parties know about your exit plans ASAP so all sides can begin to prepare for the change.
3. Calculate Transfer and Training Fees: A franchise exit often means that the franchisor will lose some money during the transfer, something that most corporations are eager to avoid. As a result, transfer and training fees are common in many industries. This means that you will have to pay a certain fee when transferring the franchise and its location to a new owner, and another fee to support the training of the new owner. Other fines and fees may be applicable based on your contract, so prepare for at least a few out-of-pocket expenses when leaving and set some cash aside.
4. Consult an Attorney or Advisor: Find a franchise attorney or similarly skilled party to ask advice about financial planning and contract management. Some franchises may provide an advisor to help you complete the process as well. Professional advice is a true boon, particularly in the most complicated or competitive industry where understanding your options is key to a successful transition.
5. Work Hard on a Sales Price: Since the most popular exit option is selling your franchise, you need to understand exactly how much your franchise is worth. Study market prices, comparable sales, and the value of your location and all assets. Some franchises will offer to buy the franchise from you, while others will require you to pick out a reasonable offer. Both situations require you to have an intimate knowledge of exactly how much your particular franchise is worth. This is another area that agents and attorneys can help with.
6. Expect Lengthy Negotiations: Much like a short sale, franchise transfers can take a long time because several different parties must agree to the final decision. Franchises may refuse certain buyers, and certain buyers may back out. Plan for lengthy negotiations and repeated tries when it comes to transfers. Settling in for a long wait will help you strategize for your own personal financial plan.
7. Start Your New Plan Today, Not Tomorrow: With all the waiting and negotiation, it is important to start your own plans as soon as possible. Unless you are retiring, begin researching other business options, investment opportunities, and financing possibilities as soon as you can, using the months of negotiation and preparation wisely so when the transfer is complete you are ready to begin your next project.
Jason Kelly is a professional blogger that provides tips and information on franchise opportunities and investments. He writes for BeTheBoss.ca, the place to find Canadian franchise opportunities online.
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