Do you have an exit strategy for your restaurant or franchise business?

A wise restaurant industry mentor once gave some very sage advice: “Always, and I mean always, have an exit strategy before getting into any venture.” He suggested that this exit strategy could take one of many forms, and we are going to take a look at each of them in this article.

If you are an entrepreneur operating your own restaurants, a franchisee or even a franchisor, you have most likely been focusing most of your attention on your growth plan. And that is understandable. But even early on, it is critically important to have an exit plan in place.

What an exit plan should contain

A comprehensive exit plan is necessary no matter what your corporate structure might be, and it is especially important if you have partners in your ventures. It should cover what happens in the event that one or more partners want out of the business – and this includes you. The exit plan needs to lay out the steps to be taken in this event.

Asset value

Have a predetermined method for the valuation of company assets. How will the company be valued? Will it be valued based upon current income and assets? Future income? It is usually wise to have an independent appraisal conducted by a professional business valuation company. Your exit plan should cover this in advance.

• First right of refusal – Address the “first right of refusal.” If a partner/shareholder in the business wants out, not only do you want the methodology for determining the valuation in place, but you will want the remaining partner(s) to have the “first right of refusal” to buy the departing partner’s portion of the business using the prescribed valuation method.
• Sale of stock in the restaurants – Who can purchase the departing member’s portion of the business in the event the remaining partner(s) do not want to exercise their right to purchase? This is important to consider and address in your exit plan.
• Asset inventory –