Succession planning for your franchise

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How do you ensure a family business can survive beyond its founders, particularly in light of the next generation who may have little or no interest in the family business? If they do, they may not have the experience or professional skills necessary to take over the business operations.

Why worry? Picture this: a franchise that has been operating for over 30 years with the founding directors and majority shareholders in their mid to late 60s. Their children are off with their own careers. They may have no involvement in the business, or if involved, they may not have the experience to take over control of the business if the founding directors fall ill or wish to retire. Without a succession plan the business may not continue on or survive.

So how do you start to build a succession plan?

Firstly, the franchisor founders need to recognise these issues and embrace change.

The time to do that is whilst they are still actively involved and in control of the business. Left too late, decisions are made under pressure and wrong decisions can be made.

Take steps to an exit 

How do you start the succession process? The step from being a family owned and controlled business to establishing a new board of directors can be daunting. Appointing external directors and non-executive directors to take over control of the business is a major step. A non-executive director who takes on the role will be accountable to the founding directors and shareholders and needs to not only have the right skills, but also the right personality to effect change.

The company will need to have family members ‘buy in’ to the changes and this may involve dealing with settling up internal family issues and dynamics as well as tax issues well before any changes are implemented.

A line should be drawn once the decision is made as to what was previously a family owned company and the new corporate entity. Prepare a business succession plan setting out key objectives, time lines and milestones to be achieved so there is a plan to work towards.

Set realistic time frames and allow some flexibility for those dates as things rarely go to plan.

The number and mix of family and independent directors also needs to be considered.

This process can be assisted by establishing a nominations committee, and dependent on the size of the business, an audit risk and remuneration committee chaired by independent directors. These can be rolled out over time and will assist to deal with the key aspects of the business - namely financial, operational and strategic.

Establishing a family council, separate from the board and focusing on family matters, which can then communicate issues or concerns to the new board can ease the transition from a family owned business and also assist in maintaining positive relationships within the family and between family members and the new board. It gives those with an interest a voice in the process.

Ensure the appointment of the right non-executive directors who can mentor and train younger family directors if any choose to continue, or who can assist the company to maintain consistency at management level whilst changes are implemented.

Appointing the family accountant or advisor to the new board may not be the best choice. They may become a CFO or company officer, thereby creating a conflict between those who provide external advisory services to the business and the role of board members.

Appointing a director with corporate governance experience to the new board is sensible to assist the set up of the new board and establish a governance culture. This may take some time if family board meetings were held around the dinner table over a beer at night. It is a significant change in process, compliance and thinking.

Prepare a strategic plan for the business and identify the skills needed on the board. The board should identify the talent it needs which may change over time and then actively recruit for that skill set.

The existing founding directors may not be best placed to recruit their replacements as they may not be objective about the future direction of the business.

Ensure that throughout the process you involve your trusted legal, accounting and business advisors to assist the transition and identify risks and issues that need to be considered along the way.

  • Marsh & Maher’s Corporate Group regularly advises and works with clients, accountants and business advisors in relation to restructures, mergers and acquisitions and provides consulting advice on business succession issues.

 

Robert Toth

Robert Toth is franchise partner at Marsh & Maher Richmond Bennison. Robert is a Business Law Accredited Specialist, a member of the International Franchise Lawyers Association (IFLA), and a member of the Australian Institute of Company Directors. View More...
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