Steve Beagelman is the founder and CEO of SMB Franchise Advisors, where he has guided hundreds of businesses through the franchise process. In July, Beagelman joined the Atlanta Franchise Today show to discuss how entrepreneurs could know when they were ready to take their company to the next step. Today, he again sits down with host Leslie Kuban, this time to discuss a frequently overlooked topic: private equity.
Entrepreneurs often forget that a major aspect of building a business is the exit strategy, and fail to plan for their eventual departure until the last minute. This rings especially true for companies which have matured into franchises, as managers are often swept up in the increased business. However, Beagelman notes that if a company and its business model is well-run and successful, its owners stand to earn huge sums of money from a private equity firm looking to purchase their organization. However, growing a business’s price tag means increasing equity: the current and projected value of the company. While the present value of a company is based solely on its assets, the future value is estimated based on the performance, growth and longevity of the organization. The better these variables, the more a private equity firm will be willing to pay.
More: Entrepreneurs should begin planning on increasing equity as soon as their company becomes franchised. This will protect them from emergency situations where they may unable to continue working, but can’t find an interested buyer. From the start, franchise owners should prioritize efficiency and quality in their work operations. The better a company’s products or services, the more promise a private equity firm will see in the organization. In addition, franchise owners should keep in mind the more locations they can operate with manageable debt the higher their offer will be.
Making the decision to sell one’s business can be difficult, especially for owners who have sacrificed to keep their company afloat. However, as Beagelman notes, selling to a private equity firm can be life changing. Depending on the firm, selling also doesn’t mean business owners are entirely removed from the picture. Many groups keep founders involved after an acquisition to leverage their managing expertise, giving owners the chance to ensure their efforts don’t go to waste.
Franchise owners looking forward to retirement, or fund other business goals, should see private equity firms as a perfect opportunity to achieve their goals. However, as always, Beagelman encourages entrepreneurs to consult with an expert before taking chances.
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