Franchise Succession Planning: What’s Your Exit Strategy?

Planning to exit a franchise system is just as important as choosing to be part of one. While passing down your business to a loved one can strengthen your relationship, it can also be a pretty complicated process.

To make the process even more complex, most franchisors must approve your successor. William Slater Vincent, a Georgia-based attorney and professor at Life University co-authored the handbook, Franchise Succession Planning and Transfers for the International Franchise Association (IFA). In an interview with Entrepreneur, Vincent said, “I’ve worked with franchisees from over 100 systems, and every single franchise agreement I’ve seen clearly states that if the franchise owner dies, the franchisor has to approve the successor.”

Every franchise has different requirements when it comes to succession plans. So, it’s important to know which to fulfill during the succession planning process. Remember, your franchised business is a result of years of hard work. What do you want to happen to the fruits of your labor after you’ve decided to move on?

Despite the importance of having an exit strategy in the plans, the fact of the matter is most business owners don’t even think of it until they’re close to retirement and it’s already too late. The IFA says only 30 percent of family-owned franchises make it to a second generation, while just 12 percent of second generation franchise owners pass it onto the generation after.

Let’s Talk About Options

It’s important to take a custom-designed approach that suits your needs as well as the franchisor’s. So, what are your options?

You can sell your business to one of the following:

• a trusted family member or employee
• an experienced broker or reseller
• another franchisee or back to the franchisor
• a private equity group or investment bank

Dana Telford, a consultant with Chicago-based Family Business Consulting Group, told Entrepreneur that succession planning is typically a 10- to 15-year process. Transferring ownership requires knowing your business inside and out. That means you need to analyze variables, including number of units owned, valuation per unit, transfer taxation and sale.

Now, Let’s Talk About Your Big Exit

Aiming for seamless succession? The first thing you need to do is research franchisor expectations. Find out if there are any successor training or capital requirements. Knowing what a franchisor is looking for will help you choose the right successor to take over your business.

Next, begin the search. Trust us; identifying a successor is harder than it sounds. This person needs to be passionate about your business and willing to put in the same hard work you did to grow it.

Once you choose a successor, figure out how you want to train them, including franchisor requirements. You need to teach them every aspect of successfully running your business. They should be prepared to take over even before your proposed transfer of ownership goes into play. For instance, your successor will assume ownership responsibilities if you unexpectedly get sick or just need to take a break.

Doing the proper planning ensures everyone’s goals are fulfilled—yours, your successor’s and the franchisor’s. Some franchisors even offer a succession program. Try putting together a team of legal and accounting experts to be sure all of your bases are covered when it comes to legalities and tax efficiencies.