Andrew Carter

sUccession pLanning in a franchise sYsteM

leaders of a growing franchise are by necessity, intently focused on the day-to-day growth of the business. unfortunately, that means an important issue like succession planning often takes a back seat.

While 50 percent of business owners plan to retire in the next 10 years, two-thirds of them haven’t developed a succession plan. a newer trend is people leaving the workforce to invest in a franchise with the anticipation they will pass it on to their children. recent numbers suggest a high number of franchises won’t survive the retirement of the original owner without a succession plan in place.

even people who don’t anticipate anything bad will happen to them still plan for the unexpected by preparing a will, yet franchisees don’t make similar preparations when it comes to their businesses. and franchisors rarely plan for such unexpected events, either. For business leaders, leadership succession is one of those issues that never seems critical until it suddenly is. But the reality is that when you engage in succession planning, you’re actually preparing to take your business to the next level.

as the demographics of the franchisee population change, franchisors will likely struggle to fill the gaps as retirement looms within the canadian marketplace. The cOVid-19 pandemic accelerated many of those retirement plans. Whether you’re a baby boomer still leading the company or a Gen Xer starting your journey into entrepreneurship, thinking about that transition—planned and unplanned—is critical work that you need to do before you have to do it.

during the start-up phase of the franchise, a business plan helps to layout organizational structure, establish management roles, and produce financial projections. This is a key “ Succession planning isn’t just about the distant future; it’s about preparing for your franchises growth and long-term viability.”

undertaking in the succession process as well. creating a management plan that evolves over the life of the business may help to make the transition to retirement less stressful. Both franchisees and franchisors should identify the following when creating a sound management plan:

a Sound management plan

succession planning isn’t just about the distant future; it’s about preparing for your franchises growth and long-term viability. When you start along the path of succession planning, you find yourself asking such questions as:

Andrew Carter, Regional Market Leader-Franchise Finance has been working with franchisees and small business owners his entire working career. His strong operational background complements his franchise financing knowledge, providing holistic advice to all franchising situations. AndrewM.Carter@bmo.com

• Who in the business has strong relationships with your customers?

• Where is innovation happening in the organization, and who is leading that charge?

• Are there people within the organization who are prepared to take over the business?

• Are there family members who can be groomed for the role?

These are just some of the questions that can help franchisees to determine whether your business is primed for growth and who you can engage in that work. These questions also provide insight to the vulnerabilities that exist in your operation. For example, you don’t want your head mechanic or salesperson to be the only ones who have relationships with your customers. You want to make sure each customer is established within your organization through multiple points of contact so that employee transitions of any type do not affect client relationships.

Falling back on the old franchising adage; you’re in business for yourself, not by yourself, you can leverage the experiences of all the franchisees before you to help in the succession planning process. speak to those who have recently left the system as they may provide guidance on who might be a resource, timelines, and insight on how you may be supported by the franchisor.

Franchisors have a role to play in succession planning as well. in fact, many of the most successful franchisors are actively involved in the process. Franchisors should also be asking similar questions:

• Has the franchisee’s performance deteriorated or is co-operation/ motivation decreasing?

• Is the location fully staffed and trained and ready for a new franchisee?

• Should this location close after the franchise agreement expires?

• Do franchisee’s family members represent the values of the franchise or would a fresh face be best for the brand?

• How will emergency situations, like sudden franchisee death be handled –

o Will the location be run corporately?

o is a new franchisee ready to take over?

o are there any neighbouring franchisees wanting to/willing to take on the unit, either permanently or temporarily?

• Is there a roster of new franchisees ready to backfill any openings for the desired location?

asking all these questions can also yield unexpected valuable answers. Both the franchisee and franchisor may have been under the assumption that the franchisee’s children are the logical successors, but in the succession planning process it’s discovered they are not the right ones for the job because they’re unable to connect and engage with the younger leaders in the business.

While having that discussion can be difficult today, the longer-term ramifications of not having it will result in much more difficult realities in the future. a trusted team of advisers can be a great help with the process because their job is to help you make the best decisions for the business, today and longer term, and those advisers are not as personally engaged with the individuals.

It’s not all about you

When you’re leading a business, you have an impact on a broad range of stakeholders, which includes your employees, your vendors, your fellow franchisees and— yes—your customers. so ensuring that you prepare your business to continue having a positive impact on those stakeholders long after your leadership reign has ended has far reaching implications.

Make no mistake, though: how you prepare for your transition can and will have personal financial implications as well. Transitioning your company can have substantial tax implications that often takes time to plan for so that you and your family can enjoy the next stage of that transition.

The benefits of engaging in the succession planning dialogue far outweigh the challenge of going through the process. The bottom line is: The more prepared you are for leadership succession down the road, the more prepared you are for taking your franchise to the next level in the near term.

While succession planning isn’t likely a topic of conversation during the start-up phases of your franchise, discussing with your advisors as early as possible is prudent.

“The more prepared you are for leadership succession down the road, the more prepared you are for taking your franchise to the next level in the near term.”

For more information, visit bmo.com/franchisefinance

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