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 WebProWorld Marketing Forum |
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Today's article brings a few opportunities our way. First, there is an interesting job offer from the folks at CMT concerning a full-time position blogging about the Dukes of Hazzard! Cool stuff.
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Robert Scoble: I've gotta give up the link blog
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03.28.05
Franchises - Exit Strategies
 By Dennis Schooley
At an International Franchising Symposium in London, Peter Holt made the bold statement to his audience of Franchisors that they needed to understand that their business would fail, and in fact all businesses are bound for failure. Needless to say, there were a few shocked faces in the crowd.
He was making the point that it really is just a matter of the number of calendar flips before time strangles any business. It's a hard point to argue when you think that the Neanderthal Fortune 100 included Barney's Dinosaur Obedience School. Not a lot of money in that these days.
Evolutionary change would seem to indicate that we should all prepare for failure. Of course, if we do an extremely good job, perhaps our grandchildren's grandchildren have the problem, and we can rest easy in the hammock for now. In a much more practical view of the calendars we get to flip ourselves, we should think about creating a successful Franchise business, maximizing the value, and realizing the optimum return with an appropriate exit strategy.
The folly often lies in not considering this part of the equation at the very time that you are considering entry into the Franchise in the first place. That's exactly the time when you need to give significant consideration to the value of the asset that can be created. Ongoing profitability, cashflow, and emotional fulfillment, are all important criteria in the process of making an informed business decision about becoming a Franchisee. But then so is the growth of the asset value you create, along with the ease of realizing that value at the time you intend to exit.
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Snagglepuss always knew it was ‘exit, stage left', but that is not always so clear in the operation of a Franchised business. What is clear is that some dedicated thought needs to be applied at the time of entry so that appropriate strategic planning is put in play. Let's consider a simple example to illustrate the importance of this consideration where you can increase the value of the business by $200,000 in five years, and there is a ready and willing market for the business at the end of that time. A straight-line application of the value increase, without considering the time value of money, would indicate that the real average annual earnings would be $40,000 over and above the net income of the business.
That should tell you that a business that earns $80,000 per year in profit might actually be a better investment than a business that makes $100,000 per year, if the latter has significantly less realizable value at the time of exit. If the plan is succession to family members, then again, the value of the asset to be transferred is of paramount importance, and not just the annual income.
Of course the timing of exit or liquidation will carry significant weight, and it's not always in our control. Gilligan's partnership share of Skipper's Cruise Lines would have been much more valuable before he met Thurston and Lovey. That would indicate that we shouldn't put the hen's product all in one wicker carry case. The consideration should include both ongoing profitability, as well as ultimate asset value at the planned time of exit.
The value of planning can't be overstated. The Allies didn't just decide to go for a boat ride across the English Channel to Normandy one sunny afternoon. The Miami Dolphins didn't win three Super Bowls in a row in the 1970's because they won the coin toss. They even withstood the infamous Garo Ypremian foibles, because their plan was tight and well executed.
It certainly makes sense that a tight, and well executed, business plan would include both the profitability of the venture, and also the ultimate cash value at the end of the rainbow. The Franchisor should be able to provide you with pertinent information about asset growth, and the factors that will affect transition. If they are unwilling to discuss the matter, the solution is simple - run!
All good Franchisors should be looking for Franchisees that wish to maximize the value of their business with a well laid out plan. That will only enhance the value of the Franchise system as a whole, which increases value for each individual stakeholder. For the Franchisee, it really should be a significant attraction to become involved in the business in the first place.
The 21st century businessperson is the spawn of corporate hijinks and technological advancements in today's global marketplace. What mattered in the past is not important now, including individual employees, whole departments, and entire processes. The new entrepreneur needs to control their own destiny, and will not place their fate in the hands of others. They will not risk Mr. Dithers handing them a pink slip. They believe that assessable risk is required to earn financial freedom. They also understand that the proper equation to assess risk includes both current profitability plus long-term asset creation.
Read the Rest of the Article.
About the Author:
Dennis Schooley is the Founder of Schooley Mitchell Telecom Consultants, a Professional Services Franchise Company. He writes for publication, as well as for schooleymitchell.blogging,com and franchises.blogging.com, in the subject areas of Franchising, and Technology for the Layman. http://www.schooleymitchell.com, 888-311-6477, dschooley@schooleymitchell.com. |
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