Sunday, October 31, 2010

What's Your Exit Strategy?

I had a meeting recently with a long-time business owner and franchisee. I was reviewing a new franchise agreement that he was being asked to sign for several franchised locations. The agreement was for five years, no right of renewal. This gentleman was not concerned with the lack of renewal rights at first, since he figured he would be retired by then. But when we started to talk a bit more about the value of the business that he had built over 25 years, it was evident that he had not considered a sale of the business as part of his exit strategy. In fact, he just thought that in five years, he would walk away. The business had been good to him, allowing him to earn a living for many years. After discussing a possible sale, he realized that there could indeed be someone out there who might be willing to pay for an assignment of his franchise rights. Once this realization hit him, he understood the value of a right to renew in his franchise agreement (and his leases). It's interesting to me that some business people don't think of their businesses in terms of saleable. They are a way to earn a living, but can also be a substantial asset that someone else will pay good money for. Even though a business is franchised, and sometimes there are restrictions on sale, it's worth having a look at and determining what the exit strategy may be. Once you know approximately when and how you wish to exit the business, it allows you to have a look at opportunities you may not have thought of before. And the strategies for getting there - like ensuring you negotiate for a right to renew an agreement. What's your exit strategy? Knowing the answer to that question makes good business sense.

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