Selling a Franchise Business

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BrainstormingHere at Apex we’ve sold every type of business you may have heard of, and at least a dozen you could probably have never imagined. But franchise businesses add a few additional wrinkles to the process that it’s important for any buyer to be aware of. In this article, we’ll discuss those wrinkles and how you can smooth them out.

Who’s the Boss?

Unlike other transactions, there’s a third party besides buyer and seller here: the franchisor. Each franchise agreement is different, but many franchisors will include in the original contract that they signed with the franchisee:

  • A right of first refusal for buyback: they can (though often do not) exercise the right to buy back the business from you at terms stipulated in the contract.
  • The ability to vet a buyer: very often these buyers will have to go through the same financial vetting process that the original franchisee did, and will also have to be interviewed for proper fit for the franchise itself
  • The ability to levy additional costs: there will often be a transfer fee that will be paid directly to the franchisor simply for the “right” to transfer the franchise to someone else.  Additionally, the incoming buyer will likely have to go through the same (paid) training that the original franchisee did.

We urge our clients who are considering buying or selling a franchise business to be very familiar with the terms of the original FDD (franchise disclosure document) that everyone is subject to so there is no misunderstanding before starting down the road to a transaction.

What are the Pros?

There are lots of pros of buying into a franchise. With top tier franchises, you’re buying into something that has a well-established system. It’s so well-established that they’ve multiplied the system with strangers. There is an operations manual that you will not only be given, but thoroughly trained on.

You also have bought into something that has a strong brand presence. Customers know exactly what you provide within an established brand halo, and often have loyalty to the brand above and beyond their personal loyalties to ownership. This makes transitions simple.

You will also have the chance to meet other franchisees to see what improvements and changes you can make to take the business you are buying to the next level.

What are the Cons?

In addition to the vetting process listed above, the franchisor itself is, in a way, a direct competitor to the seller. The franchisor is always looking to sell more units and may be able to provide incentives and sweeteners to a deal for a new franchisee that someone who is just looking to sell/transfer his/her franchise to someone else can’t.  However, the overall mission of any franchise is to grow, and if a potential buyer looks like a solid and qualified possible franchisee, a healthy franchisor isn’t going to endanger bringing that buyer into the organization as a new franchisee.

There’s also a smaller buyer pool. We’ve said in previous articles that the bigger the buyer pool, the larger the number of possibilities. Because of the limits of creativity imposed in a franchise model, there are fewer people open to buying into them. But that may also be an opportunity for a buyer, as he/she will be competing with fewer people for the best franchise opportunities.

Looking to buy or sell a franchise business? We’ve been through those transactions hundreds of times. Let us put our expertise to work for you.

Case Study #35: Jazz Guitar Lessons and $250k Annual Revenues

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Jazz GuitarFor some years, Marc-Andre Seguin was the typical struggling artist, specifically, of the musical variety. But unwilling to face the fate of so many before him, he decided to create a blog about his music, and almost a decade later, that site pulls in a cool $250,000 a year in revenues. How did he get there and where is headed? Let’s take a closer look!

Beginnings

Marc-Andre first started by simply providing some content about jazz guitar pieces and improvisation. He would link to Google Adsense and Amazon Affiliates, earning revenues from the growing number of visitors to his blog. Some of these clicks would earn him 15 cents, others 30 cents. He also began to charge for PDF versions that could be downloaded and also allowed people to book private lessons with him via Skype. These strategies got him from the early months of $30/month in revenue to $700-800/month.

Infoproducts

One of Marc-Andre’s students happened to be experienced in email marketing and convinced him to start creating infoproducts, be they e-books or private “classes” that could be sold via email marketing. This was also a success, and started to bring in significant revenues, but that also meant time putting together an infoproduct for each email launch as well as the right combination of marketing and wording to make the offer compelling. Revenues were now into four figures a month for Marc-Andre, but he grew tired of having to come up with each new promotion for the email push, and decided to take a look at another model…

Then, Subscriptions

While there is a universe of “guitar lessons” available on the Internet, Marc-Andre discovered that he was part of a very small cadre offering anything relating to jazz guitar, and so he decided to pursue that niche with all of his focus. But instead of the overwhelming all you can eat Netflix model, he offered something more course-oriented. He created a “start here” engine that guided people through the lessons, starting at whatever level they were comfortable at (and eliminating those who were too advanced for what he was offering). Then, as more and more content was being created, the users would then be an infinite loop of learning.

His current churn rate is around 10%, which is standard for an infoproduct business. As of late 2019, Marc-Andre’s jazzguitarlessons.net brings in roughly $20k/month.

Key Lessons

  • Niche: in the era of the internet, embracing a specialized niche for an infoproduct business is not just smart business, it’s absolutely necessary.
  • Subscription Model: Software as a Service (SaaS) has prepared many customers for a recurring monthly charge rather than a one-time payment. Leverage that shift in mindset for your own benefit.
  • Embrace the Pivot: Several times in his business journey Marc-Andre found himself at an inflection point. At each juncture he embraced more work to get to more income, but he also did it while creating systems to make that work easier over time.
  • Begin with the End in Mind: As of the publishing of this article, Marc-Andre has not exited the business, because his goal is to hit 1,500 subscribers who are paying $39/month. With the multiple that accompanies solid subscription businesses, he’s come a long way from struggling artist. But he’s also demonstrated that you don’t need to reach a lot of people to build a million dollar business.

Book Club #21: Finish Big: How Great Entrepreneurs Exit Their Companies on Top, by Bo Burlingham

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How Great Entrepreneurs Exit Their Companies on TopWe’ve run into Bo Burlingham here on Book Club before. We’ve reviewed his groundbreaking Small Giants book and he was seen as a major source for Dan Andrews’ Before the Exit as well.

Burlingham characterizes this as an “end-up” book as opposed to a “start-up” book. Fascinatingly, there’s so much literature about starting up, but not too many at all, like Finish Big, about “ending up.” Yet it is true that all businesses at some point, must end for the owner, and the most successful ones end in an exit.

Key Lessons of Finish Big

The book is chock full of lessons for anyone even remotely interesting in building, running, and exiting businesses, but they can be divided into several large categories:

  • Case Studies – actual stories of how businesses started and exited, sometimes with the names changed. These can either be major successes or catastrophic failures. In either case you often have the entrepreneur him/herself describing, through the author, each step in the process.
  • Education – if you didn’t know about due diligence, financial ratios, stock vs. equity purchase and other vocabulary that surrounds a business transaction, Bo does an excellent job of weaving short explanations of these throughout the text. He assumes that you have some basic familiarity with business in general, but assumes a zero starting point for familiarity with the ins and outs of transactions.
  • Choosing a successor and managing your people – one of the trickiest parts of a transaction is keeping confidentiality so that your staff can stay on task.  Perhaps even trickier is to find a successor to you so that a buyer can have confidence the company will not just survive, but thrive. Burlingham takes us through several scenarios, extracting key steps you should take along the way.
  • End in Mind – a theme Burlingham keeps hammering home in the book is the idea of “think about your exit before it’s time.” The best time to think about your exit is during the time you start up. The next best time is at least 18-24 months before you list your business for sale. Here at Apex we’ve often maintained good relations with our clients for years before they listed their businesses, mostly because they wanted someone to keep them grounded in the realities of the market, and because they wanted to make the changes necessary to exit at a level they preferred.
  • Mentorship – we may start the journey of entrepreneurship alone, but very rarely is the journey completed alone. Burlingham highlights the many ways that entrepreneurs can find mentorship, coaching, and help in their journeys.
  • What happens next – by speaking with many entrepreneurs about the pitfalls of an exit – successful or otherwise – Burlingham challenges readers to think ahead to what happens after the sale too, not just focus on the numbers and delight of the exit.

There’s really no other book like Finish Big in the market. Only read it if you’re interested in learning about the right mindsets you should have in order to have a successful exit, which may very well be the most important financial event of your life. If you want to shortcut the reading, give us a call! We’ve got plenty of those stories amongst our treasure trove of brokers!

5 Signs You are Burning Out (and 10 Strategies to Fix It!)

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Productivity

There’s a fair amount of content available these days on burnout. Far from our future of flying cars that The Jetsons promised us, we’re tapping out email responses while “making a visit” to the one place where most of us have to go at least once a day.

Alas, burnout is not just confined to employees. It’s something that can (and often does) persist in the ownership levels of business. How can you spot these signs of burnout and make the right adjustments? We’ll discuss that in the article below!

1) You’ve got health issues

We can all face the fact that health issues may predate your business ownership journey, but if they have recently appeared, very often there is a link to what is going on at work. This is your body’s way of pushing back on your insistence that you can keep going. Listen to your body.

But additionally:

  • It’s important to manage your diet and have some kind of minimum exercise routine. Your body can’t do everything by itself.
  • Consider taking some time off (as little as a week) to reset and institute some better habits for yourself. Your body and your business will thank you.

2) Your business performance is dropping

We’re not talking about the ebbs and flows of the market and economy. We are talking about the ecosystem of your business. You’re not accomplishing tasks that need to get done and you’re not maintaining or developing the relationships that your business needs to thrive.

You have to get re-centered, and you can do that by:

  • Having a clear set of goals. What does success look like for your business in the short, medium, and long term. Keep in mind that “making more money” is not really an acceptable answer. Be specific, not arbitrary, in setting your goals and you’ll be amazed at how much more attainable they become.
  • Having mentors and/or coaches in your life. We may start a business journey alone, but we’ll never complete it successfully that way. Are you willing to be humble enough to admit you need help, and to seek it out? You’ll be amazed at how insights from others can re-energize and refocus you.

3) You seem to always feel tired

Closely tied to the point above about health issues, proper sleep is a common trait of many top performers. Block out the time you need for a proper night’s rest.

Aid yourself in that way by making sure you are:

  • Delegating enough. Remember that anytime you are performing a task in which you are not the best person in the company at, you are costing your company money. Remove everything from your plate in which you are not the best in the company at performing.
  • Blocking out personal time. Schedule “do not disturb” parts of your day and week in which your mind and body have time to relax. Athletes know that the overworked muscle tears. It’s no different for the “sport” of business.

4) You never feel caught up

We all have to-do lists that will always be added to. That’s not the question. The question is that nagging concern that you’ve forgotten something and that it will lead to a catastrophe in your business. 

Fight this feeling by:

  • Having systems in place. Systems don’t only reduce your to-do list, they also make your business more likely to sell.
  • Say “No” more. People often mistake saying “no” as something negative, but the reality is that we are finite beings with finite amounts of time. Saying “no” means saying “yes” to the other commitments you already have. Failing to appropriately say “no” means multiplying your to-do list beyond your control.

5) You dread work

The whole point of “being your own boss” was to ensure you didn’t hate work, right? So this is an unacceptable place to be. Dreading work can be a prelude to disaster in your business.

So, first:

  • Go back to why you started or bought the business and ask yourself if you are aligned with that. If not, why not?
  • Celebrate victories. We often don’t remind ourselves of those important milestones: getting or keeping a key client, hitting a revenue high, or introducing a new product or service. Celebration is healthy for you and healthy for your team.

Burnout is a danger, but it is not a necessary rite of passage. Indeed you too can be a successful business owner without burning out! Be wary of these warning signs and take the necessary countermeasures and you will be glad you did!