Does your franchise have a future? Succession plan continues your business legacy
Canadian Business Franchise
Published Sep/Oct 2004
Canada’s franchise sector may be heading for a succession crisis.
This is one of the issues highlighted by a survey of Canada’s entrepreneurial business leaders. Last year, BDO Dunwoody LLP commissioned COMPAS Inc., a public opinion and market research firm, to identify the challenges and issues facing Canada’s entrepreneurial businesses. While 50% of the 1,000 small and medium-size companies surveyed were family businesses, 72% of all respondents had not yet chosen a successor.
With about 76,000 franchise units in Canada – many of which are small and mid-size businesses that employ family members – this points out an important question: who will run these businesses when the current owners retire? The BDO survey found that the mean age of today’s small business owner is 48 years; therefore this issue could escalate into a crisis within just a few years.
Since most franchise contracts allow for passing along the business to a named successor, many franchise owners may choose to pass the business along to children or to other relatives or friends who work in the business and who appreciate your investment of time, commitment and resources to your franchise. But if you want to leave a successful business legacy, proper succession planning is essential. Here’s how you can get the process started.
Start planning now
You need to start planning early; succession is not an event, but a carefully planned process that occurs over time.
Business owners often think about succession, but procrastinate when it comes to planning and implementation. Since effective succession planning takes a number of years to coordinate, make a commitment to start now -- the sooner you begin the process, the better your chances for success.
Develop and document a plan
Succession has a greater chance for success when everyone involved has a clear understanding of the goals, the plan, the process and his or her role. This is why it’s important to formally document the succession plan.
Appoint a succession working party to develop the plan and to monitor progress; you, as the owner, selected family members and key employees should be members. An outside advisor can also play an important role by providing objective input and support.
While every business will have its own unique plan, following are the basic components:
- the process for choosing a successor;
- a timetable detailing:
- each phase of the founder’s reduced participation in the business and ultimate retirement,
- the expanding roles and responsibilities of successor(s),
- transfer of share ownership,
- transfer of voting control;
- a structured training and education plan for prospective successors that incorporates:
- working for an outside organization,
- in-house experience to maximize knowledge of the business,
- allying with a non-family mentor;
- the structure and roles of the post-transition management team.
- Share the plan with the family members involved, as well as employees and key customers and partners; this will give everyone the opportunity to understand and prepare for a smooth transition.
Stick to it
Once you document your succession plan, amend it only at meetings convened specifically to discuss succession. This ensures that everyone involved stays “in the loop.”
Then, it’s just a matter of sticking to the plan. It helps to consciously plan for your retirement by preparing emotionally and financially for a new phase of your life that does not revolve around the business.
When COMPAS researchers asked the BDO survey respondents why they had not yet chosen a successor, the two main reasons stated were “it’s too soon to decide” (65%) and “I’m not ready to think about retirement” (35%).
Sadly, these findings point out the principal reasons why other studies have found that only one-third of businesses survive to the second generation: lack of a qualified successor, difficulty in choosing one successor, lack of planning, and procrastination.
If you are like many of these business owners, your franchise business is your largest asset and a source of self-esteem and personal worth. You likely don't want to think about the day when you retire and will no longer be running your operation.
If, however, you don’t begin planning now for the long-term future of your franchise, it may not survive a transition to a second-generation owner. While planning for succession may initially push you out of your comfort zone, you should be reassured by the fact that by doing so your business will have an opportunity to thrive in the hands of others who are strongly committed to it. What better business legacy can you pass along?
Rick Chittley-Young, B Comm, CGA, is a principal of BDO Dunwoody LLP who works with franchisees and franchisors. BDO (www.bdo.ca) is one of Canada’s leading accounting and advisory firms, which helps businesses and entrepreneurs succeed. If you have questions about this article or you would like to receive BDO’s “Tax Factor” newsletter, contact Rick in the Oakville, Ontario office at (905) 844-3206 or rchittley@bdo.ca.
