Dave Ciambella

Not to be overlooked: the franchise agreement!
July 19, 2008

Those of you who are franchisees pay close attention! Have you developed a succession plan for your business? If so, I commend you as many of your peers talk about having a succession plan but have yet to develop formal documentation that reflects their plans. Now let me ask you another question: does your succession plan take into consideration the specifics of your franchise agreement? If not, I suggest you shake the dust off of the agreement and find the specific paragraphs that relate to successor nominees, ownership transfers, death, disability etc. Many times the franchise agreement is overlooked or in some cases ignored when franchisees develop their succession plans. This could result in a violation of your franchise agreement which could have significant consequences including the derailment of your succession plan!

Approximately five years ago I encountered a franchisee who had transferred ownership in his businesses to his children which happened to be a brilliant estate planning move. The client was successful in transferring more than two million dollars of business value to the next generation by taking advantage of available discounts in conjunction with a low business value at the time. The only problem is that he had not received permission from his franchisor as stipulated in the franchise agreement which technically put him in violation of his franchise agreement. Fortunately for him, he was able to gain permission after the fact. However, some are not so lucky. I have witnessed other situations where a particular franchisor leveraged situations such as the above by requiring the franchisee build new facilities or comply with new image standards.

Here are a few suggestions for you to consider as you approach your succession planning with your franchisors:

1. Review your agreement to ensure you fully understand the impact on your succession plan.
2. Engage your District Manager/Zone Manager (or the appropriate contact) and leverage your relationship while you are alive: most times they are glad to help facilitate your request.
3. Be proactive so your surviving spouse or heirs are not grappling with these issues at an inopportune time such as at your death.
4. Get approval from your respective franchisor prior to making decisions and changes which could be detrimental to your plan and your business.

Posted by Dave Ciambella on July 19, 2008 | Comments (0)