Succession Planning for Franchisors

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Succession planning is critical for any business owner. But for franchisors, having a business continuity plan in place is imperative to ensure ongoing operations.

Large corporations generally have their bases covered when it comes to continuity, thanks to the checks and balances of a more complex ownership or shareholder structure. For smaller businesses and those companies that are closely held, however, the death or incapacitation of an owner can bring operations to a halt and potentially cause a complex legal nightmare for everyone involved.

Business and franchise succession planning

Understanding Business Continuity & Succession Planning

Closely held businesses, where one or more owners are responsible for day-to-day operations and decision-making, are vulnerable to interruption, and ultimately, failure, should an owner die or become unable to make decisions for the company.

The essence of succession planning lies in identifying your successor(s) and preparing them to step into your shoes seamlessly, should the need arise. Not only must you determine how your business will move forward if you are no longer at the helm, but you must implement the legal structures necessary to achieve your objectives.

Whether you plan to pass your business on to future generations, sell it as a going concern or liquidate its assets, planning an exit strategy can take a decade or more. For many business owners who have begun franchising their concept, the importance of planning for the unknown becomes obscured by the need to responsibly manage growth.

Why Franchisors Need Succession Planning

You have put your time, effort and money into launching and building your business. When you reach the level of success that allows you to franchise, the chances are good that your company has many years (or decades) of growth ahead.

However, unless you start planning now for how the business will continue to thrive without you, all your efforts could be lost, should you suffer an untimely passing or become unable to run your company. Not only will this affect your company, but it could potentially put your franchisees in a precarious legal and financial position.

Your business attorney can take you through the steps of establishing and implementing a succession plan. Although the details of your plan will depend on a variety of factors, it is important to identify the necessary steps and put a formalized plan into place.

If you have business partners, talk to your business attorney about negotiating and executing a business buy-sell agreement with your partners. This helps prevent any disputes or business interruptions, should one partner die or become incapacitated.

Ensuring Business Continuity for Your Franchisees

As important as it is for franchisors to implement a comprehensive continuity plan, your franchisees also need to plan for what might come next — to protect themselves and you.

Albeit on a smaller scale, your franchisees are apt to get caught up in establishing their business and carving out their share of the market, forgetting to plan for unexpected contingencies. Talk to your franchise lawyer about how you can structure your franchise agreements to minimize any potential disruption in your own cash flow, should a franchise end up in probate or without effective management.

In Salt Lake City, Franchise & Business Law Group provides a comprehensive suite of legal services to small- to medium-sized business owners, with a specialization in franchise and commercial law. Contact us today to schedule your consultation to discuss implementing succession planning for your business.