Playing the End Game
As a franchise consultant, I explain to prospective buyers all of the processes involved in the ownership of a small business. These include not only acquisition and operating processes, but also what is involved in divesting of a business.
To discuss selling a business before you buy it might seem counterintuitive, even foolish. As a prospective buyer and a veteran, you would be tightly focused on making a business work, not on planning an exit strategy.
But a very good franchisee, Guillermo Medellin, would advise you to have that discussion – and then follow through on it. Medellin has owned three Russo’s New York Pizzeria stores in Houston for six years, and he is preparing for the day when he decides to sell. To learn how, read “Making an Exit” in the March 2016 issue of QSR magazine; https://www.qsrmagazine.com/back-house/making-exit.
KEEP TRACK OF EVERYTHING
If I were counseling you, I would suggest that, after you spent a great deal of time building up a business, you would not want to see it demolished in a matter of days by new owners. To prevent this from happening, I would advise you to record significant data on every aspect of your business – from the time you buy it. In other words, write everything down.
Financially, this advice is a no-brainer. How else would it apply? Here are just three examples:
- Keep records of interactions you have with employees and clients, good and bad.
- Write out the business and leadership strategies you used, and indicate which succeeded and which did not.
- Make a calendar that documents important dates in your business operations – the first day you turned a profit, a day you had to close down for big repairs, etc.
You would also keep all of your major documents well organized – phone records, business purchase contracts, tax returns, lease agreements, etc.
With everything carefully cataloged, future managers would be able to flip through your records and reference how you handled a wide variety of situations, if they came up again.
SELECT A STRATEGY
How would you exit your business? An owner can select from a wide range of exit strategies. Martin Zwilling, writing in Business Insider, lists five of them:
Merger and Acquisition (M&A) Either you would incorporate your business into another business, or a larger company would buy out your business completely. This could be great for both companies if your expertise complemented theirs.
Initial Public Offering (IPO) You would sell ownership to the public in the form of stock. Larger companies use IPO’s when they want to be publicly traded. IPO’s have become much less common in recent years; shareholders can be very demanding.
Sale to an Individual In this case, you would have to be picky about the buyer. If the buyer were a friend or family member, you would need to make sure he or she understood what was being taken on. Otherwise, you could have some awkward dinner conversations.
Change of Management You would keep the business and make it your “cash cow.” You would pay someone else to manage the business for you and, if there were other investors, eventually you would pay them off. Of course, this strategy would be an option only if your business were consistently bringing in the bucks.
Liquidation and Closing Liquidation is usually not ideal, and it often means something bad has happened. However, an owner who plans well can emerge from liquidation in good shape.
WHEN TO SELL?
How would you know when it is time to sell? In my opinion, you would know when you could imagine a better future for either the business or yourself without your involvement.
Suppose you already had in mind a person or a company that you were confident could do a better job. You would do your research, conduct interviews, and think the matter through to make sure you were right.
If the end of your company seemed inevitable, and liquidation seemed to be the only option, you would need to find a project for yourself to work on after all is said and done. It would not need to be a huge undertaking, but at least something you were passionate about to work on and keep your flame of motivation going.
PERSISTENCE AND MOTIVATION
Finally, after we discussed the end game, I would counsel you not to let an irrational fear of liquidation prevent you from considering small-business ownership. Not all businesses are meant to succeed, and a lot of people are not
always successful in their endeavors the first, second, or third time. It is just a matter of persistence and motivation – those are the two main keys to making your ideas successful.
David E. Omholt is a franchise advisor with Veteran Franchise Centers (VFC) – a RecruitMilitary strategic partner. His company offers a free service to veterans looking to learn more about the franchise buying process and options in the market. Omholt is a Certified Franchise Executive (CFE) and a frequent speaker on the subject of franchising on talk shows, at industry conferences, and on college campuses. He has been both a franchise licensor and a franchise licensee. Omholt is available at 866-246-2884 or firstname.lastname@example.org.
By David Omholt