The Role of Succession Planning in Business: What Every Franchisee Must Know
Franchisees do not often consider succession planning until a big, life-stirring event such as an injury or a split occurs. However, succession planning is something every franchisee needs to do to secure the future of their business.
There are many legal nuances involved, and someone like Attorney Jason W. Power of Franchise.Law is an expert. Either way, here are some franchisee stories to display the importance of preparing for the inevitable transfer of one’s business, known as succession planning.
Case Study One
The first franchisee story here is that of Al Rodriguez, who, like any other franchisee, did not plan his business’s succession. He waited until he suffered a pretty severe injury and a heartbreaking divorce before eventually transferring his business to his son and his fiancée’s child.
Rodriguez is the owner of 35 Sports Clips spread across western Pennsylvania and northeast Ohio. The ownership of these businesses, alongside the franchisee deal he just signed with Dogtopia, he plans to fairly transfer once he steps away.
Rodriguez, who is one of the seven children of his divorced parents, said he entered franchising to give his children a different life. He admitted that he did not consider his business’s future when he retired until an injury changed everything. He had ruptured his Achilles tendon and could not do the same work he used to do.
A succession plan is the first thing on his list because he wants his son to continue his legacy. Thus, he consulted a succession planning company to handle the transfer of ownership of his business when he retires.
Case Study Two
Like Al Rodriguez, Indi Nandhra was also forced to sell her business when her marriage crashed. Eighteen years ago, she became a Goddard School franchisee, but then she got divorced, and reality set in. The divorce forced her to sell her business, which also meant giving up huge profits as a settlement.
Nandhra was easing into the pre-retirement stage when her son told her he was quitting school and taking the franchisee path. She agreed to go into business with her son, dropping the financial capital while the son oversaw the day-to-day operations.
The Nandhras co-owns five locations of Mathnasium in Georgia until her daughter entered the business, complicating the situation. Her daughter took over an existing location; her son commented that there were too many chiefs and not enough Indians in the business. As such, they had to align their roles and skills and establish more effective communication channels.
Like Rodriguez, Nandhra also serves as chair for the Franchisee Forum. She states that things will change in the family business. She says the business is restructuring its LLC, which will decrease its tax liabilities when she transfers it to her children.
The Best Way to Go About Succession Planning
If you have not started succession planning, you should start now. Experts urge franchisees to hire a professional accounting firm when planning their succession due to the huge tax repercussions involved. A good accounting firm can offer valuable advice on the best ways to reduce those taxes.
Franchisees preparing their succession plan should review the franchise agreement and let the franchisor know they intend to leave the business. Also, it is important to align skills and roles when transferring the business into the hands of family members. Apart from that, establishing operating agreements for family governance will guarantee a smooth run of the business after the franchisee retires.
Conclusion
Most franchisees don’t expect to step away from their business anytime soon—especially when things are running smoothly. But whether due to retirement, health concerns, life changes, or an unexpected emergency, there will eventually come a day when continuing to run the business is no longer feasible. Waiting until that moment to decide what happens next can put everything you’ve worked for at risk. That’s why developing a solid succession plan early on is so critical.
