Franchisors are deeply concerned about franchisee’s lack of clarity of a succession plan and preparedness to execute one.
To motivate franchisees and to protect their brand, some more seasoned franchisors have created requirements for franchisees to identify their successors who must be formally approved prior to any transition of ownership or executive management. Failure to comply results in the execution of a first right of refusal by the franchisor. It is safe to say that franchisor redemption is the least attractive option when attempting to realize the highest value for the sale of your business.
In, Worried About Your Succession Plan? So Are Your Franchisors, Jeff Bannon shares, in just about every case, franchisors would prefer not to redeem stores that are historically profitable under good management. It is in everyone’s best interest to develop a plan for the continuity of profitability – which is exactly what succession planning is about – whether it’s a sale to a key manager, sales to a third party, or transition to the next generation of family.
Jeff provides a few common, basic factors when beginning to consider succession options:
- Sale to a Third Party – “When I’m gone, they can sell it” – To whom? For how much and what will the market look like? Who will run it and how long will it take to ensure a good deal can be made without distress? How will the family recreate the income previously generated by the business?
- Sale to a Key Manager – “He/she’s been with me a long time and deserves it” – How will a key manager afford it? At what terms – will the family have to wait to receive the value of the business? When will the key manager be ready to take over? How will the rest of the management team react?
- Transition to the next generation – “They will carry on my legacy” – Sibling rivalry? Are they ready and have they been approved? Who can bridge the gap until they are? Can I develop a wait-and-see plan? Protection from divorce/in-laws? How do you create a fair estate plan? Should everyone own the business? How do you communicate the plan?
- No Plan – “I like what I’m doing and don’t want to give up control” – Typically, business owners struggle with the idea of not being in control and believe that succession planning is about giving up control. This may be why several business owners wait until the last minute to throw a plan together when life forces them to. Ironically, succession planning is the only way to retain control. Taking the initiative to tailor a succession plan for their business is the only way to avoid using the government and franchisor’s plan – which no entrepreneur has ever wanted to rely on.
Some franchisees are hesitant to begin succession planning, proclaiming “I’m not ready” or “I’d rather not think about it.” Those are both fair feelings, but without a plan, future profitability is subject to little more than random luck.
Read the complete article on the Multi-Unit Franchisee website then give us a call. Succession planning is complex and the future can feel daunting. However; Jeff’s experience in working with owner’s of complex business and family environments will provide you valuable insights to help you figure out your next step forward.
The Succession Planning Matrix
The Succession Planning Matrix
Preparing a business to transition from one generation to another requires a focus on 10 key areas which we call the Succession Matrix. Click the following link for more drill down resources on The Succession Matrix
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