Passing the Torch: Succession Requires More Than Good Intentions

For many multi-unit and franchise operators, building a business is about more than just restaurants, stores, or EBITDA. It is about building something lasting that their children may one day continue.

In theory, passing a business down to the next generation sounds ideal. Parents spend decades building a platform, creating wealth, and eventually handing the keys to their children. The business stays in the family. The legacy continues.

Sometimes, it works. Sometimes, it absolutely does not.

After years of working with multi-unit operators across a variety of franchise systems, we have seen both outcomes and everything in between. The reality is that transitioning a business to children is often far more complicated emotionally, operationally, and financially than owners expect.

What Do They Want?

The first and most important question is also the hardest one: Do your children actually want the business?

Not every child wants to operate a business, manage labor issues, deal with franchise requirements, or answer calls about broken equipment on a Saturday night. Many children grow up seeing the stress, long hours, and pressure their parents endured building the company. Some admire it. Others want no part of it.

One of the biggest mistakes operators make is forcing succession because they want the business to stay in the family even when the next generation lacks the interest, temperament, or operational discipline to run it.

A poorly managed transition can destroy enterprise value remarkably quickly. We have seen situations where the second generation inherited an excellent business and then erode margins, lose key employees, and ultimately reduce the value of the company dramatically within just a few years.

In some cases, owners would have been financially better off selling the business and simply giving their children the proceeds, whether through trusts, estate planning structures, investments, or other means, rather than forcing them into an operating role they never really wanted.

Experience Matters

For the operators whose children do want to be involved, preparation matters.

One of the best indicators of future success is whether the next generation has earned credibility inside the organization. That starts with operating experience. Real operating experience.

Children should work in the stores. They should understand labor scheduling, customer complaints, food costs, throughput, and the realities of managing people. Employees can quickly tell the difference between a future leader who earned respect and one who simply inherited a title.

The next generation should also spend time outside the four walls. They should attend franchise conferences, meet franchisor leadership teams, build relationships with lenders and vendors, and network with other operators in the system. One of the advantages of franchising is the strength of the operator community, and the next generation needs to become part of that ecosystem early.

Importantly, many children first gain experience outside the family business as well.

Many successful operators encourage their children to work elsewhere first, sometimes even outside the multi-unit and franchise industry entirely. That outside experience often creates maturity, perspective, accountability, and confidence that cannot be replicated by immediately stepping into a family leadership role.

The Sibling Question

Another challenge operators frequently underestimate is fairness among siblings. What happens when one child wants to run the business and another does not?

This is where emotional family dynamics and business realities often collide. Equal ownership does not always make sense if only one child is actively operating the company. At the same time, unequal treatment can create resentment within the family.

We have seen ownership structures where inactive siblings receive passive distributions while active operators carry the burden of growing and managing the business. Over time, this can create tension around compensation, decision-
making authority, reinvestment strategies, and risk tolerance.

These issues are manageable but only if they are discussed openly and planned for early.

Selling vs. Gifting

Succession planning is not just operational, it is financial. Depending on the structure, owners may choose to gift equity over time, create trusts, implement family partnerships, or structure intra-family sales.

The right strategy depends on the size of the business, the owner’s financial goals, estate considerations, and family dynamics. What matters most is beginning the planning process before a transition becomes urgent. Too many operators wait until a health issue, burnout, or unexpected life event forces difficult decisions.

Beyond Ownership

Perhaps the biggest misconception of all is that succession is primarily about ownership transfer. In reality, successful transitions are often more about leadership transfer, trust transfer, and relationship transfer.

The next generation is not simply inheriting a business. They are inheriting employees, culture, vendor relationships, franchisor credibility, and organizational trust built over decades. That takes time to transfer properly.

For operators fortunate enough to have children who genuinely want to be in the business and are willing to put in the work, generational transitions can be incredibly rewarding. Some of the strongest franchise organizations in the country are second and third-generation family businesses.

But succession should never happen by default because sometimes the best way to preserve a family legacy is to pass down the business. And sometimes, it is to sell it.

Brent Elsass is a partner with C Squared Advisors, an investment bank that has completed hundreds of transactions in the multi-unit franchise and restaurant space. Contact him at (937) 623-6121 or [email protected].