There are many reasons why franchise owners decide to close up shop. Sometimes it’s a personal decision: too much pressure, too little free time, the desire to move on to something new. But often the decision to exit a franchise has a lot to do with the profitability (or lack thereof) of the business.
Many people go into a franchise business assuming that their success is guaranteed. Why wouldn’t it be, with the backing of a powerful, successful brand and product? But sometimes the particular quirks of franchising can cause significant headaches. Encroachment by rival franchises can steal away customers. Inflexible or unhelpful franchisors can also be a problem, and you and your franchisor may not always have a good working relationship. What are you doing paying a third party a percentage of your sales when it doesn’t give you the support you need in purchasing, hiring, and training?
Think carefully about the decision to exit your business. Before making any rash decisions, draw up a list of all the problems you are experiencing in the business, then sit down with your franchisor and go over them one by one. Don’t be afraid to float potential remedies for specific situations to your franchisor — if you do have had a good working relationship, it will want to help you find solutions. You should also speak to other franchisees. Perhaps you’re simply experiencing drawn-out business “growing pains” that they can assist you with by offering practical, firsthand advice.
However, if you do decide you definitely want out, review your franchise agreement to be sure you’re allowed to sell your business and transfer the agreement to a new owner (most franchise agreements do allow this). You should consult with the franchisor beforehand, as the company will likely want to approve the new owner.
Most franchisors have what is called “right of first refusal” when a franchisee puts his or her business up for sale. This right guarantees the franchisor first dibs on purchasing your business. Consult your franchisor about this, and if it wants to pass on the purchase, get proof of this waiver in writing (this is an absolute necessity!). Inquire whether or not there are other franchisees in the system who may want to take over your business. This could prove to be the fastest way to an exit.
Also, be sure to carefully read over the section in your franchise agreement on post-term covenants, which are essentially the rights and duties you have when exiting a franchise. They could play a significant role in any business plans you may have down the road, especially if you have agreed to a “covenant not to compete.” It’s recommended that you bring your lawyers in to help you fully understand everything in this section, as the language used can be dense and hard to understand in layman’s terms.