How Great Hires Equal a More Sellable Franchise

On November 22, 2019 our CEO, Nunzio Presta, had the privilege to co-host a webcast with Swob. Swob is a mobile app designed to make job searching for students easy and recruitment even easier. One segment that BizON and Swob both service is the franchisee, so we organized a terrific conversation. See below Nunzio’s Q&A:

Question: Is selling a franchise hard?

Nunzio: BizON has connected billions of dollars’ worth of businesses and franchises with a 40% success rate, therefore, from those stats I would say it is harder than easier.

But, if your opportunity aligns with S.E.T (social trends, economic trends and tech trends) then it really shouldn’t be that hard, however, every deal is unique. Overall, during the process of connecting with buyers you need to understand that it’s a process not an event. You have to understand that a lot of time, thought and money will have to go into your journey and identifying who that potential buyer can be. Your priority should be to find a buyer that suits the franchise and has the ability to carry on the legacy. Let’s not forget this is either the #1 or #2 biggest asset a person has in their life – so it is extremely important. A study from Harvard estimated that a typical price tag on a buyers search for a business or franchise can be anywhere from $500k - $1m in loss time, wages, fees and selling price. At BizON, we cut this time and cost by putting in the upfront work to attract and consolidate opportunities and engaged buyers and sellers in one convenient marketplace.

Question: What makes a franchise sellable?

Nunzio:

Timing:

As a buyer or seller, you need to identify trends and ensure that timing is on your side.

Know when to sell and when not to sell based on S.E.T. Remember, you’re not selling a business for today, you’re selling it for future opportunities.

So, if you’re looking to sell a taxi company, due to innovation that space has been disrupted, so your time may have passed and the valuation or opportunity provided with a taxi company may be limited.

In addition to timing, you really need to pitch the business ensuring its unique and the market size is big – a buyer is going to devote their life to buying and building what you started, so it has to be worth it. Communicate.

Recurring Business Model:

1) Build profitable, growing & recurring revenues year-over-year.

2) Ensure financials are up to date, organized and prepared properly.

3) Most buyers want to see 3-5 years of financials in order to apply some sort of normalized projection.

If you have a goal to sell you need to be less aggressive with running a ton of perks through your business, which can minimize taxes in a given year, but they essentially reduce profit and also reduces the valuation when it comes time to sell. Buyers are more attracted to profitable businesses with clean books and records.

Once again, as a seller you need to understand that a potential buyer is not buying the business for the present moment, they are buying it for the future opportunities. So, expect questions around your financials and the ability for your financial performance to be upheld.

Switzerland Structure

A business for sale can’t be dependent on:

- 1 leader, 1 employee, 1 supplier or 1 customer.

No buyer wants to enter a business with so many unknown and the fear of losing clients or a big supplier that can jeopardize operations. This concept sounds pretty easy and straight forward, however, many business owner disregards it. Through my experience less dependency in business operations equals a more valuable and sellable business. And as a leader, if you’re not replaceable in your business you are a liability.

Question: What should I focus on the most in order to build a sellable franchise?

Nunzio: This ties in with the Switzerland structure. If you can hire and train a great workforce so you are less dependent on the operations of the business, it will make your franchise more valuable. As the leader, if you’re not replaceable, you’re a liability because potential buyers know that once you leave so will business and potentially your workforce. So, if you can hire great people and set up operational principles, processes and company values, then your company will be able to operate without you – which is great. It also gives you time to think about the future of the business – where leaders should be thinking.

Question: Do the people who work for me help increase the value of my franchise?

Nunzio: Of course. Your team and culture are the operating system of your business. The people, processes and principles within your franchise need to be repeatable and teachable, as you need to create a business that can thrive without you. If your business can’t function without you, you will have a hard time finding a buyer or the valuation of the business can take a hit, however, the opposite is true – if you have an independent, strong and professional team it will add value to your business. Aside from the operations, a great team will also be a more productive team that leads to great financial performances, less volatility and more innovation and creativity, which increase the value of your business.

Question: Can a great hire turn into my future buyer?

Nunzio: Absolutely. A management buyout (known as a MBO) is a form of acquisition where a company’s existing managers/employees acquire a large part or all of the company from either the parent company or from the private owners. This type of buyout became extremely popular in the 1980s and I have a gut feeling it will become more and more popular in the next 5 to 10 years as family succession is becoming less popular.

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Opinions expressed here by Contributors are their own.