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Exit Costs

Either party may make the decision to exit the franchise relationship. This choice carries with it both direct and indirect costs. In this discussion we assume that the franchisee’s exit is followed by the decision to continue to operate as an independent. You could, of course, try to sell the franchise instead. This can be difficult if poor performance is the underlying cause of your dissatisfaction. The sale price would be significantly depressed. In either case—sale or exit to become an independent operation—understanding exit costs is essential to making a sound decision.

You should assess your exit costs while your relationships are strong, before conflict arises. As an integral part of a relational dynamics management process, assessing these costs will confirm your understanding of the value of the franchise. Based on this confirmation, you will see the value in managing and planning for conflict before it happens. Only in the worst situations will you have to put your knowledge of exit costs into action to terminate the relationship. In contrast, when returns meet expectations and you are ready to sell the franchise, exit cost knowledge will help you assess the value of your firm and establish a sale price.


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