Succession Planning Considerations for Franchising

by Alyssa Kaye

Business owners today are facing competing demands more than ever before. As economic uncertainty remains and technology and the franchise industry continue to transform, franchisors and franchisees are being pulled in a number of different directions. Oftentimes, creating a successful and effective succession plan is not a top priority. While succession plans take time and resources to create and implement, they are integral to ensuring that the company is in the best position for future growth and continuity and ensuring that key roles remain filled throughout the life of the organization. Owners who do not properly plan for their succession could face a disorganized structure, encounter disputes over the future direction of the business or be forced to exit their business in an untimely manner.

A succession plan is most commonly driven by the overall growth strategy of the organization and the individual goals of the stakeholders. Creating a plan early ensures the plan can adapt to both the changing needs of the business as well as the interest of the stakeholders. To allow for flexibility, business owners should develop a succession plan early and revisit it often. An entity should proactively anticipate the direction of the business to ensure key roles and responsibilities are clearly defined and extend through the lifecycle of the company. Identified key roles within the organization should be continuously evaluated to determine their significance and identify any gaps in responsibilities.

The most detailed and thoughtfully planned succession strategy is only effective if it is properly executed. To ensure that a succession plan is successful, it should be shared with various key employees and professionals. Getting others involved in the process early will create a sense of ownership around the direction of the business. Consistent communication helps avoid unpleasant conversations, as well as aligns the expectations and goals of all the parties involved. Creating unity around the objectives of the organization ensures that decisions about how to manage the company and ultimately deliver success are achieved.

Once a plan has been created and communicated, the company is ready to determine the best strategy to achieve its goals. As a franchisor, there are a number of options available for a successful exit: transfer the franchise to a family member or members, sell or transfer the business to one or more employees, undergo an external succession by selling the franchise to an outside third-party, perform a strategic merger or obtain an investment by an outside investor. Franchisees typically have similar options available when assessing an exit strategy, however, limitations may exist. Franchisees should refer to their franchise agreements and the Franchise Disclosure Document for the specific terms and conditions governing changes in ownership, ownership structure, and selling their business.