The Selling Odyssey: How 4 operators exited their businesses

By every measure, Jeffrey Tews and his business partner and wife Susan Rather were successful and happy franchisees.

They jumped on the BrightStar Care train soon after founder Shelly Sun decided to franchise her in-home care and medical staffing business. The couple wanted to give more back to the community after long careers in business management and health care, so they became BrightStar's fourth licensees.

Their operation ultimately spread from Madison to seven other Wisconsin cities. Over 17 years, they employed approximately 5,000 caregivers who worked 1.5 million shifts. Ten years ago, their son came on board.

Life was chugging along in 2022 when Sun came to Tews and Rather with an intriguing idea: Would they be interested in selling their locations to her?

Thus began the odyssey of their exit. 

With every beginning, there comes an end. But what factors do franchisees need to consider when deciding whether it’s time to hand over the keys to someone else? What does the process of exiting a franchise agreement involve? What groundwork should be prepared ahead of time?

Experts say it’s never too early for succession planning. As franchisees research what’s involved with entering a franchise agreement, they also should be looking just as thoroughly at what it takes to get out of it. Yet a great number of franchise operators don’t begin with the end in mind.

Much can be learned from the experience of others. In the following four case studies, operators share how they decided to exit franchise agreements and how the process worked for them.

Case Study 1: Stick to the script

When Sun’s offer came, Tews and Rather already had been contemplating retirement. He was entering his 70s, and both were ready for a less hectic life and more travel.

Months earlier, Rather says, they had sat down with their son. “We had a heart-to-heart with him and told him that we were getting ready to step down a little bit more and asked if this was a path that he wanted to take on his own,” Rather recalls. “He said, ‘I love working with you guys, but I don’t want to do this on my own.’”

The couple didn’t really have an exit strategy. The offer “just kind of fell into our lap, and it was a good time,” Rather says.

The two of them felt they had a strong team in place that could keep the businesses going without disruptions during a handoff. That was important because they wanted to ensure that their clients and the clients’ loved ones continued to have the peace of mind that BrightStar afforded them.

“Families—when they’re at a spot where they need to count on additional care for a loved one, it’s a real trying time,” Tews says. “To find somebody that’s going to care for your mom or your dad or your grandpa or whoever it is, that’s a very important thing, and it’s important to have them feel like they’ve got a partnership with us.”

Tews and Rather also considered the well-being of their employees, 400 caregivers and 60 managers in 2023. They had always been empowered to offer suggestions and speak their minds.

“One of the keys to our success over time was understanding that the people closest to the work were the ones who best understood what needed to be done and how it could be improved,” Tews says. “For me, the most concerning was, how would they be treated? Coming from us, we had a robust bonus plan based on their success and full benefits provided to them. We paid 70% of their health care benefits and had a 401(k) plan with a match.”

All of their employees were in the dark about the acquisition until two months into the talks when the couple needed to bring in four of their directors who had deep knowledge of the operation.

From start to finish, it took about four months to reach a deal. That’s because “we were very compliant franchisees,” Rather says. “All of our processes were in line with the expectations, so there were no surprises when they really drilled into our business. We were doing everything the way that they expected. Our financials were in really good shape. So, other than lots of meetings with lawyers, working through the agreement that we had already established, it was a pretty simple process.”

No real estate was involved. They had six offices that they leased. Those leases were transferred to the buyer. The parties worked out the purchase price by analyzing multiple EBITDA figures. “From our perspective, it was finding a fair value of the ongoing revenue stream,” Tews says.

Employees have acclimated well to the new organization. At Sun’s request, Tews and Rather have made themselves available for their former director-level employees. “If they’ve got questions or things we can help with or problems they’re trying to solve and they want to use us as a sounding board, we’re available for that,” Tews says, “and we’ve committed to Shelly to do that for the remainder of 2023.”

Rather advises others looking for a smooth exit to make sure everything they’re doing lines up with the franchisor’s recommended procedures. “There’s a reason that you go into franchising,” she says. “If somebody’s not following the model, then it’s going to be really hard for them to sell their business.”

Case Study 2: Begin with the end

Mitch Cohen always had an entrepreneurial spirit. Straight out of college, he went to work as a nighttime manager at Baskin-Robbins in New York. Months into that job, he was presented with an opportunity to open his own Baskin-Robbins location, and he jumped at the chance.

“Because the opportunity was there at what seemed at the time to be a relatively low-cost investment, I thought that this would be a great place for me to kind of plant my roots and try to grow,” he says.

Cohen didn’t have the money, but he had a lot of spunk. “I went to the people who are now my business partners and made a proposal that maybe we should come together on this, and they said I’d have to put some skin in the game,” Cohen says. “I would advise against what I did: I went out, back in 1983, and took cash advances on some credit cards. It was pretty risky. I raised my end through the high-interest credit cards that I had, and we opened our first location. Relatively soon after that, we had six locations, and then it just started to blossom.”

He and his partners would go on to open 15 combined Dunkin’ and Baskin-Robbins locations. One Long Island location also included a Nathan’s Famous restaurant.

They were still in development mode in 2016 when a lucrative offer came their way from a person who had a specific interest in expanding on Long Island. “We looked at the multiple and said, ‘Wow, we probably will never see that number again,’” Cohen says, “and decided that we would sell.”

But he later learned that the rose came with some thorns. “We were not in the selling mode when we were approached,” he says, “which was part of the problem because we never had an exit strategy prior to being approached.”

Cohen and his partners sat down with their financial advisers. They talked about taxes on their potential windfall. “Being in business for so long, that created a very big liability. This is where I caution people now, having learned from my mistakes,” he says. “Silly as it sounds, as you’re entering into the franchise business, you should be planning with an adviser a strategy that’s robust for when you’re ready to exit. We did not have that.”

As attention-grabbing as the offer was, the actual price still had to be negotiated. “It ended up that they gave us an offer that was an extremely high multiple,” Cohen says, “and then when we gave them the financials, that number changed.”

That deal went sideways, but Cohen and his partners were firmly in selling mode. They soon found different buyers. However, the brand exercised its right of first refusal.

“Here’s a tidbit for when people are exiting the system,” Cohen says. “If the brand has the right of first refusal, the seller must make sure that the buyer puts up a very large deposit if they don’t want the brand to get involved. A lot of times, buyers will put up a small deposit, and then the brand can replace that deposit. Now, for me as a seller, I’m guaranteed whatever the contract says. But for the buyer, they wasted their time, effort, and money.”

Roughly 10 months after first being approached, Cohen and his partners sold their units with the brand acting as the broker. However, they didn’t leave the franchise world. They now operate eight Jersey Mike’s Subs locations and have two in development. They also have two Sola Salon Studios open, another under construction, and six in development.

This time around, there is an exit strategy. Cohen advises franchisees to engage a financial adviser early. It should be someone who understands franchising, so “you’re setting up retirement funds, tax annuities, looking at what happens with capital gains when you sell it. Is there a possible rollover to a different business?” he says. “Should you be investing the money and profits that you have now, as you’re working with your units, in different facilities that would allow you to avoid some of the tax liabilities that you would have once you sell?

“And then, the other thing is succession planning. The children that you have, are they going to be interested in the business? Does the franchise agreement that you signed allow you to make a transfer to a family member? The first thing you should do is review your franchise agreement to make sure that if there is an exit process, you’re fully aware of all the i’s and t’s within that process. If you didn’t do it before, you should absolutely do it now.”

Case Study 3: Look for opportunities

Joe Hertzman had amassed 30 Checkers & Rally’s restaurants in Kentucky and Indiana when the pandemic hit in 2020. He found himself perfectly situated for the coming storm.

“The brand, and our stores in particular, got a huge boost from Covid,” says Hertzman, who had bought his first restaurant 36 years earlier. “The fact that we were considered an essential business, we were able to be open. And we were a drive-thru business. We got a great shot in the arm, so to speak, in both sales and profits.”

With business booming, he decided it was time to exit. “I felt that I was going to get the best valuation that I might ever get,” he says.

Hertzman reached out to franchise broker Rick Ormsby, the managing director at Unbridled Capital. It took 14 months and a couple of attempts, but the sale closed in December 2021.

The buyer was another Checkers & Rally’s franchisee. That made it easier to secure approval from the franchisor. As for negotiating the price, Hertzman says, “We had a number, and they had a number, and we came to an agreement.”

Hertzman also was partnered with his brother, Allen, in 26 Papa Johns locations in Columbus, Ohio. His brother ran the Papa Johns division of their portfolio and decided to test the waters for a potential sale. 

In October 2022, they sold the Papa Johns locations after more than 30 years of ownership. “We had great operations, good profits,” Hertzman says. “The brand was bringing really good multiples. We got a nice offer, and we accepted it. The buyer also was a longtime Papa Johns franchisee.”

The Hertzman brothers didn’t have a long-laid exit plan in place, but they were well versed in their franchise agreements. They had only a few pieces of real estate, which they sold with the restaurants. Mostly, it was a matter of transferring leases.

“There’s not much we would do differently,” Hertzman says. “In our situation, it was the right time for us to exit the brands. After a lot of years, we felt we left our people in good hands with the purchasers.” 

Hertzman says he wanted to give his 25-year-old son Alec “a runway and a career in business as well.” In April 2022, they bought two Jersey Mike’s Subs in Indianapolis and now own nine locations in Indiana and Kentucky.

“More than likely, he and I will work out a deal where he’ll take me out at some point when he’s learned enough to run the company,” Hertzman says. “Right now, he’s a district manager in Louisville and working very hard and doing a great job.”

His advice for those thinking of exiting the business? “Look for the opportune time when you think you’ll have the greatest value to sell when equity value is at its highest,” he says. “Fortunately, in the Rally’s out of Covid we were in a great spot. And Papa Johns—with it being a very strong brand, we were also in a good position to sell.”

It starts with running an efficient, customer-focused operation. “We ran our businesses the best that we could to create the most value so that, when it was finally time to sell, we hopefully got the best price,” he says.

Case Study 4: Be realistic

Sean Falk was flipping through a newspaper in 1998 when he happened upon a classified ad and learned that a Mrs. Fields store was for sale in his hometown.

Though he had a successful corporate career, Falk thought the time had come to bet on himself. He bought the store in Monroe, Michigan, but he didn’t stop there. He expanded his portfolio to include Great American Cookies, Pretzelmaker, Once Upon A Child, and Salsarita’s Fresh Mexican Grill.

At one time, Falk had 14 units in Michigan, Ohio, Kentucky, and Tennessee. He’s learned a lot about buying and operating franchises, and he’s learned a lot about selling them. He’s sold to partners, he’s sold to other franchisees, he’s found buyers on his own, and he’s found them using franchise resale brokers.

Each sale required a different calculation of whether it was the right time. In some instances, it was clear.

“All the cookies and pretzel stores, those were mall-based concepts. And in the late 1990s, I made a decision to actually avoid the top-tier, regional megamalls because the rent was so high, and I felt like the business model wasn’t as strong at that level,” Falk says. “I deliberately went to B and C location malls. I thought that those would kind of be community malls, and they would last for a long time.

“But as we got into the mid-2000s, you could see that those malls just weren’t going to survive. The customer base shrank more and more. I decided it was time to get out before the malls closed on me, and I didn’t have a place to be.”

Falk transferred ownership of the last unit he operated in 2020. But he still has a hand in the franchise game.

Over the years, he’s learned about exiting franchises on the fly. The process of securing the right buyer and negotiating the right deal has taken as little as four months and as long as three years.

He agrees that, ideally, franchisees should have well-thought-out exit strategies, but he understands why many don’t. “When I first started being a business owner, I didn’t necessarily have an exit strategy because I just wanted to grow, to add more to my portfolio,” he says. “If anything, the only strategy I had was kind of stair-stepping. I would buy a bigger, better, more profitable location and maybe let the least profitable location just expire or sell it.”

Now, he’s an owner-investor in three Scenthound locations. The franchised dog-grooming businesses are operated and co-owned by his children. He’s a mentor, sharing all the knowledge he’s soaked in.

“The kids and I will test the market periodically,” he says. “We’ll decide if we want to grow. We’ll decide if we want to keep it open based on profitability and if the market encourages a sale or not.”

His advice to franchisees who are considering selling is to run your businesses the best you can, adhere to franchisors’ standards, and have a realistic idea of what the businesses are worth.

“There are a lot of first-time franchisees who don’t know how to value a business. They may look into selling it, and their asking price is just unrealistic. Let’s say a franchisee opens a location and spends $500,000 on it, and it’s losing money,” he says. “And they decide, ‘I want to sell this.’ They go to the market and say, ‘I want to sell my location for $500,000. I just want to get out of it what I’ve got into it.’

“Well, no one’s going to buy that because they have a record that it’s losing money. You don’t value it on what you have in it. You value it on what it produces. Is it something that produces profit and income? Not only will savvy buyers realize that, but you’d have to actually trick somebody to give you $500,000 for an unprofitable business. And if you found somebody like that, the franchisor isn’t going to approve them. And if that person that’s buying it has to get a loan, no bank is going to give them a loan on a company that is losing money. So that transaction will never happen.”