This post is about getting to a place in which you can sell your franchise.
“Wait. I haven’t even bought a franchise yet, Joel.”
But you need to have an exit strategy.
And not when your franchise business has been up and running for a while, but now. Before you write a check to the franchisor. Why?
So you have a specific long-term goal firmly attached to a neuron or something in your brain. So you’re always thinking about it.
You’re purchasing a franchise so you can be your own boss. So you can be in more control of your life. And you’re excited about the possibilities.
And when you’re in the middle of the franchise buying process, you’re thinking of things like:
- Due diligence
- The best location for your business
- How you’re going to find employees
- Your business plan
- Finding a franchise lawyer
Along with how to keep your fear of making the wrong choice in a franchise at bay.
Overall, it’s pretty normal stuff. Important stuff.
Nevertheless, there’s something else that needs to be top of mind while you’re looking seriously at buying a franchise.
You need to think about selling your franchise business.
That’s because you’ll have built equity in your business in the years* you’ve owned it.
*Most franchise contracts are 10 years.
Here is the definition of equity.
“Equity can be defined as the amount of money the owner of an asset would be paid after selling it and any debts associated with the asset were paid off. ” – Courtesy of TD.com
In other words, what your franchise is valued at, minus anything your business owes. And that’s what you’ll be selling your franchise for.
“But, Joel. I have no idea what the franchise I buy is going to be worth 10 years from now. ”
I don’t know what it will be worth either.
Your Franchise Is Going To Have Value
If you buy the right type of franchise, it’s going to have value.
“What type is that, Joel?”
Wait for it.
This is where my friend, John Warrillow, the author of “Built To Sell” comes in. Hi John!
Here’s what John says about the type of business you need to own:
“Once your business can run without you, you’ll have a valuable, sellable asset.”
Thank you John.
In his book, he tells a great story of a business person who wants to sell his business. It will really get you thinking. You should buy it. Why?
Because John’s book provides valuable insights and practical advice for prospective small business owners looking to build a valuable asset that can thrive without their constant involvement.
The book is an easy-to-read, practical guide for anyone looking to create a successful and scalable business you can sell.
So what type of franchise should you purchase?
The type of franchise you should buy is one that can eventually operate without you being there all the time.
Please read that again.
Examples of franchise businesses that can normally run without the franchisee being there all the time include:
Almost every franchise opportunity in the world.
Franchise Businesses That Are Difficult To Sell
I can name a few franchisors and even some franchisees that may not like what I’m about to share here. Here goes.
The best example of a franchise business type that’s hard to sell is a coaching or consulting type of franchise. Like this one.
That’s because in a small business coaching franchise you’re the business.
Not the “brand,” even though the folks at franchise headquarters will tell you how powerful their brand is. And how you’ll be able to capitalize on it.
Wait. I forgot to tell you something.
Would you like to know how you can make a lot of money owning and then selling a coaching franchise?
Become the Master Franchise holder of the franchise.
For example, if you own “ActionCoach of New York,” and you have 15 franchisees under you, you have something to sell.
That’s because they’re paying you a percentage of their revenue x15.
And better yet, whoever you sell your Master Franchise to will have a great opportunity to sell even more franchises in New York and increase her revenue. Hopefully a lot.
But if you’re the owner if a single coaching franchise…even if you’re making good money, your clients aren’t buying ActionCoach.
Instead, they’re buying you, as you’re the face of the business. They’re buying your expertise. And it doesn’t matter if your using the ActionCoach worksheets and techniques. What matters is you.
Can you think of any other types of franchises in which you are the business?
Franchises That Are Easier To Sell
Here are several franchise types that are easier to sell than a one-person business.
- Food franchises
- Hair Salons
- Retail franchises
- Home Services franchises (with employees)
- Automotive franchises
- Pet franchises
And too many others to list.
Things these franchises have in common.
- They have employees
- They have a location and/or vehicles
- They possess client/customer lists
Conversely, what does a coaching or consulting franchise have?
On Selling A Franchise
Did you know you can sell your franchise business pretty much anytime?
9 times out of 10, you can sell your franchise after a year in business, 4 years in business, whenever. There’s one caveat.
The executives at franchise headquarters need to approve the buyer.
P.S. there are always people looking to buy existing franchises. Even non-franchise businesses like these.
To summarize, when you purchase a franchise, you need to think long and hard about your exit strategy. Before you buy it.
Secondly, if you want to have a decent chance of having equity in your business, you need to stay away from franchises that revolve solely around you. For instance, most one-person franchises.
Thirdly, if you want to sell your business, you can do so at anytime (in most cases). You don’t need to wait until your franchise contract is up.
Finally, and I haven’t mentioned this yet, you need to talk to a lot of current franchisees about the potential for equity.
Ask them if they know any franchisees who have sold their franchises and how they did. You’ll be surprised how much they know, because in most cases, franchisees talk to one another regularly.
So if you find the right franchise, one that can potentially provide you with equity, do your research, make a yes or no decision, and come up with an exit strategy.
You’ll be glad you did.