The topic of equity isn’t exactly what I’d call, “top of mind,” with most of the prospective franchise owners that I work with as an advisor. Most of their energy is focused on things like potential locations for the franchises that they’re considering, or other minor details; like how much they’re going to make as franchisees. Equity? Who needs it?
Well, if you’re looking at becoming a franchise owner, I think that you need it. I’m convinced that you’re going to want something to show for all of your hard work as a small business owner, not to mention the up-front investment you made to get your business up and running. And you’ll actually have about 10 years to figure out how to come out a winner.
That’s because in the franchise world, most franchise agreements, (contracts) are 10 years in length. In most cases, you’ll have an opportunity to renew your agreement, so you can stay in business. Or, you can sell it. (You can usually sell your franchise business before the 10 year contract period is up. Make sure you know going in what your options are.)
This is Easy to Visualize
If you end up investing in a franchise that requires you to have a physical location, like a fitness franchise for example, in 10 year’s time you’ll probably have multiple locations. (That should be your goal.) So, if you kick back for a moment, put your feet up, and close your eyes, you should be able to easily visualize the 2 or 3 stores that you own. Are you with me so far?
Now let’s say that you’re getting towards the end of your franchise contract. Let’s also say that you’re approaching 60 years old, and are starting to think about other things…..like a beachfront condo somewhere, for example. Maybe you’re thinking about travelling. You’re actually having lots of interesting thoughts these days….and they all seem to have a common thread; they don’t involve you working!
That’s all you have to do as a retiring franchise owner. Just sell your franchise business. I didn’t say that it would be easy…but, it can be done.
My friend Carol Roth shared 6 things that you’ll need to do to get your business ready to sell over at another friend of mine’s highly rated small business blog. It’s all about the preparation, and it needs to start when you first purchase your franchise. That means that you need to start thinking about your exit strategy the moment after you sign your franchise agreement, and send in your check for the franchise fee. Most franchise owners don’t do this. Go ahead; be the change.
If you go into your new venture with an “investor’s” mindset, meaning that you want to have a real return on your investment, and are able to keep that mentality front and center during the term of your agreement, you could be rewarded handsomely.
For One-Person Franchises
If you’re the owner of a franchise business that is home-based, or office based, you’ll have to do things differently though, to prepare it for sale. As John Warrillow, the author of “Built to Sell,” writes;
“The number one mistake entrepreneurs make is to build a business that relies too heavily on them.”
Now, let’s substitute “franchisee” for entrepreneur, so that I can show you what you’ll need to do if you’re a one-man or one-woman show, and you’d like to have an opportunity to create equity.
The only way that you’ll be able to sell your one-person business is to take someone on as an employee, and teach them how to be The Owner.
Let’s use a coaching-type of franchise business as an example, since they’re very popular, and have the added bonus of becoming the next bubble that’s going to burst.
(The reason that business coaching franchises are going to bubble over soon, is that there are so many of them around that will be approaching the end of their franchise contracts soon, and most of these franchisees don’t have an exit strategy.)
For around $80,000, you can become the owner of a business coaching franchise. Your role as the franchisee is to call on small businesses in your geographical area that may be interested in your consulting services. Some of the services that you offer may include business planning, sales and marketing program implementation, inventory management…basically anything related to the operation of a small business.
If you can convince enough of the people that you’re calling on to sign on for your services, you can do pretty well. But, since most of your clients engage with you on a short-term basis, you must continue to keep your sales funnel full. That means that when you’re not doing your paid consulting gigs, you’re either calling on potential new clients, or attending business networking events in order to keep your name front and center with fellow small business professionals.
You’re the business. For the most part, your clients aren’t buying your franchise’s brand. They’re buying you; you’re unique personality…your skills. They’re also buying what others are saying about you, and how well you perform. That’s a problem.
Fixing The Problem
In order to make your one-person franchise business one that can be sold someday, you’ll have to start to slowly remove yourself from the picture. That means that you’re going to have to start hiring others that can do what you do. One great thing about the franchise model is that it’s so system-oriented; it’s fairly easy to train new employees.
You can add new employees at any pace you want; just have enough of them to have the ability to start making some choices. The choices that you’ll be making have to do with finding a buyer. That’s right; as soon you start bringing employees on, try to figure out which one could potentially buy you out at some future date.
Still using the example of a coaching franchise, if you do this right, you could have 3 coaches under you who are all building a client base, which includes a revenue stream…one that doesn’t only involve what you bring in.
A business with money coming in from several different sources is a heck of lot easier to sell.
If you do this right, which includes proper planning that starts the minute you officially become a franchisee, you’ll have a real shot at building equity in your franchise business that can come in the form of an official bank check that you can use for that beachfront condo.
About the author:
The Franchise King®, Joel Libava, is provides franchise advisory services to those interested in exploring franchise ownership. He’s frequently called on by the media for his no-spin
insights on the world of franchising, and he wrote a book that puts would-be franchise owners into the driver’s seat called, Become a Franchise Owner!