Franchising and Succession Planning

Succession planning is not a topic that many small business and franchise operators what to think about. In addition to it’s often times negative connotation, its priority can sometimes be lost in the everyday whirlwind or running a business. Nonetheless, the topic is critical not only to address the question of succession should you suddenly pass away, but also what role it plays in your overall business exit strategy.

When you are creating a succession plan for a franchise business, you must make important decisions and answer a number of questions. For example; these decisions may involve selling your business, transferring it to a family member or shutting it down completely? Other considerations may include whether you want to a structure your plan so that it can be executed during your lifetime, or at your death? Keep in mind, as a franchisee your options may be limited to any guidelines or rules set forth in your franchise agreement.

The key is to create the best succession plan for your current circumstances. Revisiting, re-evaluating and if necessary, updating your plan should be done annually or whenever a major event takes place in your personal or the life of the business. Succession planning requires that you seek financial and legal advice from a trusted, professional and experienced planner. Your advisor can you help you assess the best route to take, create a plan and eventually assist in carrying it out. Your succession plan should also address a number of strategic business moves. In fact, it should layout guidelines for the possibility of a sale, merger or a capital raise. It is important to state that a franchise succession planning is more than just anticipating the owner’s desire to sell the business, death or retirement. You must also consider the fact that an owner can become disabled, have conflicts with other business partners or simply approach the end of the term of a franchise agreement. For a franchised business a plan may include the current franchisee identifying a successor, where the franchisor must then approve the successor franchisee. You may be limited to who may purchase the business or if you are allowed to transfer the franchise to a family member that would otherwise not meet the franchisor’s criteria for acceptance as a franchisee. As you can imagine there are numerous exceptions and issues that come into play. Hence, it is important to build a successful succession plan as part of your overall Business Strategy. Many franchisees and small business owners prefer to ignore succession planning but the consequences of no succession plan can destroy years of hard work and built up equity in your business. As I have often been quoted as saying, “in business, everything touches everything else”.

Tips for a Successful Succession Planning

Consider the family dynamics Even though the succession planning may include the family members, the existing franchise owners may also need to objectify the future leadership. Start by finding out which family member possesses the right skills, experience, and knowledge.

Selecting the right advisors Franchise owners should seek legal guidance from the team of legal advisers. This may include attorneys, accountants, business consultants and other trusted advisors.

Realistic decisions Be realistic about the business value. It is important to have a third party place a value on the franchise to help understand the framework and parameters of the franchise transfer. Major Issues to Consider When Succession Planning Are there any restrictions (external or internal) imposed by the franchisor.

A detailed and a comprehensive buy-sell agreement funded with adequate insurance to buy out the interest of the deceased partner A well-defined management strategy that determines who is immediately available to undertake the management functions when uncertainty prevails

Reference Griga, M. (2018). Succession planning Archives – Commercial Associates. [online] Commercial Associates. Available at: https://www.caaa.biz/tag/succession-planning/ [Accessed 1 Apr. 2018].

About the Author:

Gary Occhiogrosso is the Managing Partner of Franchise Growth Solutions, which is a co-operative based franchise development and sales firm.

Their "Coach, Mentor & Grow Program" focuses on helping Franchisors with their franchise development, strategic planning, advertising, selling franchises and guiding franchisors in raising growth capital.  www.frangrow.com

Gary started his career in franchising as a franchisee of Dunkin Donuts before launching the Ranch *1 Franchise program with it’s founders. He is the former President of TRUFOODS, LLC a 100+ unit, multi brand franchisor and former COO of Desert Moon Fresh Mexican Grille. He advises several emerging and growth brands in the franchise industry

Gary was selected as  “Top 25 Fast Casual Restaurant Executive in the USA” by Fast Casual Magazine and named “Top 50 CXO’s” by SmartCEO Magazine. In addition Gary is an adjunct instructor at New York University on the topics of Restaurant Concept & Business Development as well Franchising & Entrepreneurship.  He has published numerous articles on the topics of Franchising, Entrepreneurship, Sales and Marketing. He is also the host of the “Small Business & Franchise Show” broadcast over AM970 in New York City and the founder of FranchiseMoneyMaker.com