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Succession Plans for Franchises

December 19, 2012

Filed under: Business Succession Planning,Franchises — Neel Shah @ 3:28 pm

Although most people do not enter into a franchise agreement with the goal of creating a family business, children are increasingly choosing to succeed their parents in owning the family franchise. However, the International Franchise Association (“IFA”) reports that only 30 percent of family-owned franchises survive into a second generation. A recent article in Entrepreneur discusses how franchise owners can best prepare for a successful succession.

Succession plans for franchises are inherently difficult because the franchisor generally yields veto power over any proposed succession, and is the sole decider of whether a person is qualified to succeed his or her parents as a franchise owner. According to attorney and co-author of the IFA handbook William Slater Vincent, Franchise Succession Planning and Transfers, “I’ve worked with franchises 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.” Such provisions mainly serve as a protective mechanism for the franchisor. Said Vincent, “I don’t know how many times a husband dies and his wife takes over the business even though she was never involved before. Instead of being a viable business, it becomes an asset sale. Franchisors don’t want that.”

Each franchise has a different protocol for succession planning. These protocols range from not paying attention, to allowing local reps to sign off on proposed successions, to requiring that successors undergo rigorous training akin to that of a new a franchisee. The key to creating a successful succession plan, therefore, is speaking to your franchisor about any succession requirements, and creating a plan that qualifies your chosen successor in the eyes of the franchisor.

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