For franchise restaurant owners who devote their time, resources and effort contributing to the success of their business, the thought of passing the torch to the next owner can be challenging.
In fact, 69 percent of business owners who plan to retire within the next three years lack a formal succession plan, according to a survey from Bank of America Private Bank. However, it’s imperative to prepare for this next stage in life and business because ineffective succession planning can increase business risk, disappoint stakeholders and tarnish otherwise successful legacies.
Creating a successful succession plan is about protecting the future of a restaurant franchise and ensuring there are strategies in place for the business to continue to thrive, even after the owner exits. There are steps restaurant franchisees can take to create a detailed transition plan, whether you’re planning to leave your business to a family member, sell the franchise or liquidate. These are the key components to an effective franchise succession plan:
Find a Capable Successor
For those restaurant franchisees planning to leave or sell the business to a family member, partner or employee, it’s important to identify a successor who has the right leadership skills and business acumen to ensure the future success of the franchise. While many owners plan to keep the business within the family, just 30 percent of all family-owned businesses make the transition into the second generation and only 12 percent of businesses are still viable into the third generation. It’s important to put relationships and emotions aside and think about what is best for the business when identifying the right person to take the restaurant forward.
Manage the Transition
Beyond identifying the right ownership successor, it’s important to make sure your entire staff is capable and equipped with short- and long- term plans with goals the team can accomplish. You should also engage a team of advisors to help leadership ensure a smooth transition. This diverse group of specialists should include bankers, corporate attorneys and an estate lawyer.
Prepare an Estate and Tax Plan
The liquidity of a business will determine whether it can effectively offset estate taxes and other expenses. In-depth, tailored planning and assessments of the many financial instruments and strategies available can greatly simplify matters for successors. Many founders and business owners designate their personal financial advisor as a point person to coordinate efforts and clarify the overlap between business finances and family wealth.
Determine the Right Time to Transition
When’s the right time to start succession planning? It’s never too early, but ideally business owners should begin planning three to five years ahead of an anticipated transition. Life can be unpredictable, and it is critical to ensure employees and business are set up for future success after an owner’s exit.
Consider Your Legacy
Entrepreneurs consistently rank among the most generous members of society. Philanthropy is a unique opportunity to enrich lives, inspire employees and leave an enduring legacy. We encourage business owners to consider these important aspects early in their succession planning efforts, if not earlier in their tenure.
Know When to Sell
Every restaurant has its ups and downs. Seasonality, national trends and the health of your local economy may affect your business in various ways. While it may be tempting to hang on when things are going well, that’s often the best time to sell if you aren’t keeping the business in the family.
The ongoing review and evaluation of a formal succession plan will ensure your business can successfully adapt to changing circumstances: as the business grows, as owners’ priorities change and as their legacy is thought through and implemented. This process, done well, can become a critical part of a company’s ongoing business strategy.