As a business owner and a franchise investor, no one plans to exit before they sign on. If your franchise is successful, you may not need an exit strategy for many decades — that is the American Dream — when you retire. Chances are, though, at some point, you will need an exit plan — retirement, travel, pursue other business ventures. To help you get the conversation started, we have gathered a list of reasons you need to have an exit plan for your franchise ownership.
Whether your idea of retirement means traveling the world or simply not clocking in every day, at some point, we all reach the day where working is no longer our purpose. When that day comes, you do not want to be stuck working because of a contract you locked yourself into. If you are a franchise owner, when retirement day comes, there are a few options you can use to begin your retirement.
Selling is the ideal exit plan for any business owner. If you have put in the sweat equity and built up a clientele base and a successful business, selling is your opportunity to capitalize on all your hard work. If you invested in a franchise, check your agreement for limitations on selling your franchise business. While some franchises will not allow you to sell and would rather reabsorb the business, others allow you to find a buyer and they just take a portion of the royalties.
When retirement comes, if you are unable or unwilling to sell your business, you always have the option to close up shop and terminate the franchise agreement. Make sure that you have reviewed the franchise agreement to find out what may happen in the event that you terminate the agreement.
Not all businesses succeed; and while franchises have a better success rate than independent businesses, franchises also close. No one plans to fail, and some view having an exit plan as a sure failure plan because it affords you a fall-back plan. This is simply not the case. Having a safe exit strategy protects you and your family from devastating loss in the event your business goes under. It will already be hard enough recovering financially and finding a job, with someone else as your boss. Many franchises invest a lot in their business owners, each business’ success accumulates as the overall success of the franchise. In the face of business failure, your exit options become a little more limited.
If you do close the doors to your business for good, you may end up owning royalties or a portion of the initial investment. If you terminate your agreement and go out of business, you will surrender your initial investment. To prepare for this loss, it is a good idea to set aside money when things are going well and to close before the balances are red.
Signing Over Rights
Signing over the rights to your business is similar to selling it, except you will not make any money. This allows a new business owner to take over your franchise contract and ownership of your business. This scenario is not ideal, and not an option with some franchises. Before you attempt to hand over the rights to your business, discuss your options with the franchise to see how the parent company can help you.
Death or Illness
Ideally, when you look to purchase a franchise, you are in optimal health. You realize that owning a business is a large undertaking, one that cannot be taken lightly or done part-time. Unfortunately, just as every human does, you have an expiration date. It is important to consider the possibility of death when entering your business venture so that you can properly consider an exit strategy. In the event of your death and disability, your business is doomed to feel your loss and may not recover. There are a few options your surviving beneficiary may have. Whichever option your franchise agreement allows and you choose, be sure to have it designated in your living well and your franchise agreement.
Termination of Franchise Agreement
Some franchise companies offer immediate mandatory termination of the franchise agreement in the event of the business owner’s death. This may seem like a good out, however if you and your family have invested everything into your business, your family stands to lose a lot when they cannot carry on the business or have the option to sell.
If you are able to leave a surviving beneficiary to sell your business, this is the ideal situation for you and your family. For some franchise companies, you may have the option to sell the business back to the parent company. In either selling option, if your business doesn’t lose its initial investment, it is better for everyone involved.
Sign Over Rights
If your family is also invested in your business, you may have the option to sign over the rights to the business in the event of your death. This will allow your business to continue on in your absence. This is the ideal scenario for the franchise and your family. Check your franchise agreement to find out if this is a possibility.
Owning a business is a major life event and one of the largest financial agreements you may make in your lifetime. With so much at stake, it is important to the future livelihood of your family to have an exit strategy and know your options before it is too late. No one wants to think about the end and the beginning, but when you do, it helps to secure your financial future and prevent total chaos. Not all exits mean failure, in the case of retirement or starting a new business venture, it is extremely positive and indicates success. Before signing on with any franchise, ask about the exit strategy and plan for it ahead of time — just in case.