If you're running a successful business franchise, it's often easy to focus all your energy on profit and growth, particularly when things are going well. Unfortunately, life has a habit of tossing curveballs in your direction, and if something goes wrong with your franchise, you may face serious financial losses. Some franchisees don't even have an exit plan, but even those that do make some serious and costly mistakes. Future proof your financial security and avoid the five following exit strategy mistakes that some franchise owners make.
Failure to consider competitor activity
A good exit strategy helps you maximise the return on your investment by passing control of your business over at a time when it makes economic sense. Accurately predicting future turnover isn't always easy, but it's important to carefully consider the market you work in. It's particularly important to keep an eye on your competitors.
Even if you don't have a local competitor now, if your turnover looks set to increase, it's likely that somebody else will set up shop. What's more, your franchisor may allow someone else to start up in or close to your patch. Similarly, you can face threats from online businesses, and even international competitors. You must keep a close eye on any competitor activity that could affect your turnover, or you may leave it too late to exit when you are most profitable.
Few franchise owners would abandon their business if they didn't feel it was the last resort, but these rapid exits still occur. If you abandon your franchise, you may not walk away as freely as you would like. The franchisor is likely to pursue you for unpaid fees, and, if you leased your premises, the landlord will almost certainly take similar steps. Take into account the long-term reputation damage you could suffer, and you can quickly see why an exit strategy that relies on your ability to walk away is seriously flawed.
Selling your franchise without consulting the franchisor
In many cases, a franchisor will insist that he or she has first refusal if you decide to sell your business to somebody else. If the franchise is successful, the franchisor will probably want to hold on to it, but, even if it isn't, he or she will want to exert control over who continues with the brand. As such, you cannot simply sell your franchise without consulting the franchisor.
Check the details of your franchise agreement before you take action, and consult your lawyer if you are unsure about a certain clause. Even if the franchisor allows you to sell the business, you may still need to pay transfer fees.
Lack of detailed planning
Handing over your franchise is a complex, time-consuming transaction. To make sure the process completes smoothly, you need a detailed handover plan. If you've never sold a business or franchise before, contact a business broker for expert advice. He or she can talk you through the steps you need to follow. Failure to follow a detailed plan could quickly erode the price you can get for your business, so this is often a worthwhile investment.
Failure to consult a tax advisor
The sale or transfer of any business can incur a hefty tax bill, and, if you don't plan carefully, your return on investment could easily dwindle. The way you decide to transfer your franchise can influence the amount of GST or capital gains tax you pay. For example, if you include the original franchise fee in your cost base, the net capital gain in your annual tax return could drop. Only a tax specialist can steer you along the right path, so make sure you get expert advice.
As a franchisee, you need to plan every situation that your business could face, including your exit strategy. Maximise the value of your franchise by avoiding the mistakes some of your peers often make.Share