Exit Strategy Considerations In Franchise Research

While considering investing in a franchise, entrepreneurs may be so excited at the prospect of business ownership that they overlook an important and inevitable aspect of owning a franchise: having an exit strategy.  

When entering the world of franchising, everyone should have an eventual exit strategy planned out. If/when the time comes, they can depart the system with as few complications as possible. However, experts note that exit planning just isn’t receiving the attention that it should be. In fact, according to some studies, nearly half (48%) of all business owners don’t have an exit strategy prepared.

So, what do you need to know to plan for your inevitable exit? Let’s get into it.

Reasons to Exit

There are several different potential reasons you might step down from your franchise: retirement, unexpected health issues or family obligations, dissatisfaction with the business model, or a career change. Leaving a franchise network doesn’t necessarily have to imply something negative. After all, a franchise is your investment. After all the years of time, hard work and money you’ve dedicated to it, you should be able to reap the benefits of your labor.  

Exit Strategy Options

Some of the most common exit strategies include transferring the business to a family member, another franchise owner, a third party or back to the franchisor. However, when preparing for your exit, you should consult with your franchisor as this may influence or limit your options.

Maximizing Your Exit Strategy

Ideally, you should begin planning your exit strategy as soon as possible. According to Nick Mascari, the founder of Mascari Strategy Group, by preparing in advance, you can develop solutions and plans to counter any potential issues that may arise down the line.

“Planning your exit is a good business strategy whether you intend to sell your business or not,” Mascari noted in Entrepreneur. “Planning ahead can help protect against any unforeseen circumstances that could cause significant financial losses or damage to the company’s reputation. It also creates opportunities for reinvestment or diversification into other markets or industries upon exiting existing ones.”

Knowing when to make your move can greatly impact the value you receive for your franchise. The further ahead you plan, the more you can anticipate market trends and your own personal financial situation, allowing you to benefit from exiting the franchise.

Example of a Well-Planned Exit

When contemplating an exit strategy, consider the case of Becky Taylor’s well-executed departure from Sylvan Learning*. In 1998, Taylor embarked on her journey as a Sylvan Learning franchise owner. After two decades of operating North Carolina locations in Washington, Greenville and New Bern, she wanted to retire. Recognizing the significance of her departure for both her communities and the Sylvan Learning brand, Taylor was determined to ensure a seamless transition.

At the core of her exit strategy, Taylor wanted to identify a successor who shared her unwavering passion and commitment to Sylvan’s overarching mission. As such, she approached Sylvan’s leadership team with her intentions. Sylvan then helped identify her successor in Kelly James, a speech pathologist who yearned for a change and would ultimately prove to be an excellent fit for the role.

In the lead-up to Taylor’s retirement, she mentored James and acquainted her with the centers’ operations and best practices, effectively paving the path for her successor’s success. In response to the transition, officials with Sylvan said it was the “ideal long-term exit strategy for all parties.”

Plan Ahead

The importance of a well-structured exit strategy cannot be overstated. Regardless of your reason to step down, every franchisee should plan for their eventual departure. Timely and comprehensive exit strategy planning doesn’t just act as a safety net but also provides protection against unforeseen challenges, facilitating a successful and profitable transition for you, your successor and, ultimately, the franchisor.