International Franchising Symposium

Franchises-Exit Strategy
By Dennis Schooley

At an International Franchising Symposium in London, Peter Holt made the bold statement to his audience of Franchisors that they needed to understand that their business would fail, and in fact all businesses are bound for failure. Needless to say, there were a few shocked faces in the crowd. He was making the point that it really is just a matter of the number of calendar flips before time strangles any business. It’s a hard point to argue when you think that the Neanderthal Fortune 100 included Barney’s Dinosaur Obedience School. Not a lot of money in that these days.

Evolutionary change would seem to indicate that we should all prepare for failure. Of course, if we do an extremely good job, perhaps our grandchildren’s grandchildren have the problem, and we can rest easy in the hammock for now. In a much more practical view of the calendars we get to flip ourselves, we should think about creating a successful Franchise business, maximizing the value, and realizing the optimum return with an appropriate exit strategy.

The folly often lies in not considering this part of the equation at the very time that you are considering entry into the Franchise in the first place. That’s exactly the time when you need to give significant consideration to the value of the asset that can be created. Ongoing profitability, cashflow, and emotional fulfillment, are all important criteria in the process of making an informed business decision about becoming a Franchisee. But then so is the growth of the asset value you create, along with the ease of realizing that value at the time you intend to exit.

Snagglepuss always knew it was ‘exit, stage left’, but that is not always so clear in the operation of a Franchised business. What is clear is that some dedicated thought needs to be applied at the time of entry so that appropriate strategic planning is put in play. Let’s consider a simple example to illustrate the importance of this consideration where you can increase the value of the business by $200,000 in five years, and there is a ready and willing market for the business at the end of that time. A straight-line application of the value increase, without considering the time value of money, would indicate that the real average annual earnings would be $40,000 over and above the net income of the business.