Sell a franchise business during recession – part 2
David Young, Chief Executive of Shield Corporate Finance
Considering selling a franchise business during the recession? Test the market before you go there. So how does business sale market testing work?
Last time we explored why in a recession, testing the market for a franchise business, without committing to a selling the business, can be so useful. If we compare running a business to flying a plane, business sale market testing is like going in for a landing through the clouds, taking a look at the terrain when it comes into view, but being prepared to pull up again if the conditions are unacceptable.
Here’s how the business sale market testing process works:
1. You need a credible stand-alone business plan for the next few years, showing recovery in the future. You need a sense of the value of synergies to a potential buyer today.
2. You approach selected buyers confidentially (even on a no-name basis via an intermediary M&A advisor). You explain that you have a good plan to build stand-alone value for the future, but that you realise that a business sale now may deliver enough of tomorrow’s value today to make it a decision you are willing to consider. So you give them a short descriptive document and invite them to make non-binding offers for your franchise business.
3. You use this focussed, confidential market testing process to find out:
- what your potential buyers like about your franchise business
- and – more importantly – what they don’t like
- what worries them about your business
- what doubts they have about it
- what the internal nay-sayers are muttering
- and what holds them back.
Then you have a choice; pursue the best terms you can negotiate and sell the business, or pull up, fly on and use the insights you have just gained to land a deal on better terms in the future.
The good thing is you won’t have damaged the business the way a failed sale does, for two reasons:
- First, because a business sale market testing process like this can be tightly focussed and extremely confidential (possibly even, as we said, on a “no-name” basis).
- But more importantly, because you demonstrate from the outset that your franchise business has an attractive future and you are simply exploring whether a sale today could deliver enough of that future value now to make it worth doing sooner rather than later.
Useful links:
http://www.shield.uk.com/sell_a_business.html
http://www.shield.uk.com/business_sale_market_testing.html
http://www.shield.uk.com/market_testing_process.html
Tags: business sale market testing, corporate finance, David Young, m&a advisor, Selling a franchise business
