Build a Lasting Multi-Unit Franchising Business

By: Kendall Rawls
Published: May 15th, 2024

What will happen to your multi-unit franchise business when you're ready to evolve into a new position within or out of the business? Taking this question into account is not something to overlook because the decisions made today can resonate deeply, shaping the future of your business.

Why now?

Putting off planning can lead to significant repercussions for any multi-unit franchisee and multi-unit franchise/brand enterprise, particularly in a sector where operations and management are complex and extensive. An alarming number of businesses are unexpectedly caught without a transition plan, whether the transition is from five units to 10 or the transition is leadership or ownership. This can lead to operational disruptions or, even worse, forced closures. It's helpful to be aware of the options to prevent these catastrophic scenarios from occurring.

Strategy 1

The first option is to integrate a family member successor into the business but leave them with an escape hatch. This means a family member has the potential to assume a key leadership role and potential ownership control while providing alternatives should the family member decide the business isn't for them. Any number of challenges could impact their ability to take on the responsibilities of leadership/ownership.

Critical components of this strategy include:

Retention of key managers: Implementing strategies to retain key team members and building leadership bench strength is necessary for a smooth transition. Strategies like leveraging the diversity of Golden Handcuff strategies can be pivotal, offering financial incentives to key managers to remain with the company long-term to support developing family successors and other developing team members as the organization grows and goes through a leadership/ownership transition.
Strategic planning: Identifying three to five-year goals with clear action steps for team members, creating alignment throughout the organization toward the vision.
Successor development: Prepare potential successors with comprehensive training and the opportunity to develop necessary leadership skills. This might encompass structured development programs and provisional leadership roles to cultivate respect and authority.

An example of the first strategy would be a multi-unit franchise business that integrated a second-generation family member into leadership and supported them with a strong team of key managers, demonstrating effective growth and transition.

Strategy 2

The optimal strategy may involve preparing for a sale while keeping options open for family members to assume leadership roles later.

This strategy involves:

Estate and business planning documentation: Draft flexible yet comprehensive documents to allow the business to undergo a smooth transition—no matter the disposition decision—whether sold or passed on to a family member.
Family governance documents: These documents define what a commitment to the business means, aligning with family values and the existing business culture.
Developmental benchmarks: Set clear milestones and timelines for potential successors to meet to provide a structured pathway for them to rise to business leadership.

An illustrative example of this strategy is a business owner who initially planned to sell but adapted the strategy to allow his daughter to take over the business successfully after she chose to commit.

Strategy 3

During transition, some owners allow a key manager to buy into the business gradually to facilitate a smooth transition.

This strategy includes:

Financial planning: Adjust the financial terms of the sale to match the owner's retirement planning and financial needs.
Control transfer: Gradually transfer control through phased ownership or specific milestones that grant ownership rights.
Legal considerations: Craft agreements that protect the owner's interests throughout the transition and beyond.

A successful example would involve an owner who structured the sale to a longtime key manager over five years, ensuring a comfortable retirement while the business continued to prosper under new management.

The role of advisors

Creating an effective strategy requires collaboration with a team of skilled advisors, including succession planners and tax and legal strategists. Choosing the right advisory team is critical as their specialized knowledge and expertise are the linchpin in shepherding you toward your vision. Nothing is impossible with the right team supporting your future. If you are hitting roadblocks, you may want to consider seeking other guidance.

Preparing for the future through thoughtful growth and succession strategies secures continuity and success, creating a lasting business. By understanding and applying these strategies, multi-unit franchisees can be more aware of the steps needed to fulfill their family, business, and entrepreneurial goals.

Kendall Rawls with Rawls Succession Planners knows and understands the challenges that impact the success of a complex, privately held, and family-owned business. Contact her today to arrange a consultation and discover how she can empower you to overcome obstacles and achieve lasting success. Whether you're navigating regulatory shifts or striving to build a top-tier team, we're here to help you thrive in today's multi-unit franchising landscape. For more information, visit seekingsuccession.com or email kendall@rawlsgroup.com.