How can a business owner tell when it’s time to sell and move on?
A growing number of franchisees are calling it quits, a business broker recently told Restaurant Finance Monitor. Hit hard by rising labor costs and declining customer traffic, “a lot of guys … are throwing in the towel,” the broker said. Some franchisees are financing part of the transaction themselves.
Franchisees are clearly less optimistic than they were a year ago. The proportion who are at least somewhat confident that they will meet their growth goals this year fell to 48% from 77% in 2023, according to 700 franchise executives surveyed by Boefly, a small-business financing platform.
It’s usually best to sell a business when you’re doing well and prospects are good, of course. If you know you want to exit in the next three years, you might time your exit to take advantage of lower interest rates or to increase your earnings before interest, taxes, depreciation, and amortization (known as EBITDA).
While I help clients with these decisions, I also encourage them to wrestle with other issues. A question I like to ask is, “What would you do if you weren’t doing this?” The question gets them thinking about the next chapter. Are you still healthy? Do you have a plan for retirement so you won’t just be sitting around, looking out the window, wondering what the hell just happened to your life? Do you and your partner have things you want to do while you still have the ability? Have you saved enough to enjoy retirement?
For the youngest baby boomers, now in their 60s, the most powerful motivation is “I just want to do something different” or “I am getting old, and I just found out my son is absolutely not going to take over this business.”
One successful business owner I know, who is in his 60s, is a large supplier to several chains and recently expanded his operation. I said that with the additional capacity, his customers must be happy.
“Yeah,” he said, “and they also would like me to open another division in the Midwest. And I should just buy a trucking company, too, because the cost of trucking has gone off the charts.”
“So, are you going to do those things?” I asked.
“No,” he replied. “I’ll sell this business to somebody who has the energy.” To an outsider, this business owner was a picture of success. But he had found other priorities.
People always assume sellers want to maximize their selling price at all costs. But for some franchisees, the difference between getting $18 million and $20 million for their business isn’t a dealbreaker. Sure, they could wait another year for a better price. But maybe they’re 72 years old and never going to spend that extra $2 million. The only difference it makes is in how much they leave their grandkids. Does it really matter, especially if you want to spend more time with the grandkids?
Deciding to exit your closely held business is a little like selling your house or the family farm. Growing up in Wisconsin, I had a friend whose dad was a dairy farmer. He worked 365 days a year milking cows, while his wife Cheryl kept the books and managed their finances from their kitchen table. After my friend’s dad died, one of the kids decided to give the farm a go. So Cheryl stayed on the farm with the books and finances. But when her son decided two years later to quit and go to trade school, Cheryl got the hell out of there.
Within a month, she sold the cows, the buildings, and the land, and became a flight attendant, flying all over the country. She married an executive and spent her next chapter living in an upscale neighborhood in Dallas. It was breathtaking to watch. I still shake my head thinking about her kicking ass and moving on.
Cheryl sold that farm because it was time. She didn’t give a damn whether the cows would be worth more if she waited another six months. She was done.
If you’re thinking about whether it’s time to sell, take some time to imagine your next chapter. A little reflection might open some new doors you hadn’t even considered.
