Top Tips for Selling a franchise Business?
David Young, Chief Executive of Shield Corporate Finance
Be Dispensable!
Before we get excited about maximising value in the sale of a franchise business, let’s be sure that you have something to sell.
The owner-manager who is a one-man band obviously doesn’t. Not so obviously, the owner-manager with a big staff who remains the lynch-pin of the franchise business may have nothing saleable either.
Buyers worry what will happen to an owner-managed acquisition target franchise business when the owners are no longer there
• physically (because they have retired)
• or emotionally (because they have become wealthy).
If the owner-manager is the one and only salesperson, or has critical production know-how, will the business survive his or her departure? Anything short of a clear “yes” to that, and you may well have a failed business sale on your hands. As an M&A advisor, I have learned this the hard way.
Remember: buyers buy the future of a franchise business, not the past
Your brilliant past is not a saleable asset if it might disappear with you once the deal is done. But even if you clear the saleability threshold, buyers’ doubts about the future of your business after you have gone will reduce what they are willing to pay for it. So you need to bottle that brilliance of yours.
You need to:
• pass on your pearls of wisdom
• groom the next generation
• systematise your savvy
• root out any “key person dependence” – and kill it!
In short, you need to work towards making yourself redundant.
• Not because it’s good for your work/life balance (though it is!)
• nor because it’s good for your spouse (though it is!)
• but because it’s good for saleability and value.
Make sure you have a good management team in place below the shareholding managers, and demonstrate that they can run the business successfully by themselves. The most convincing way to prove that the business can thrive without you, is by having it thrive without you.
If you’ve spent time working in any big organisation, where making yourself indispensable is the key to long-term survival, this goes against the grain. But to maximise the value of your owner-managed business, you must, must, must…be dispensable!
Once this threshold need is agreed, we can move up to the next critical tip for selling a business: Set your sights on the best buyers for a business.
Next time: Top Tip #4 – Set your sights on the best buyers.
Useful links:
http://www.shield.uk.com/Selling_my_business.html
http://www.shield.uk.com/case_studies.html
Tags: m&a advisor, selling a business., Selling a franchise business
