Franchise succession planning is more often than not about anticipating death or retirement. This discounts the fact that you might become disabled, have a dispute with a business partner, or simply be at the end of a term of an agreement. Speak with a franchise lawyer about planning ahead for these situations.
Asking The Right Questions
It’s important to think ahead when you visualize your business being at its peak. Will the current economic landscape impact your business in the foreseeable future? Consider your options if the business was operating at its best. Are the systems and processes of your particular franchise well defined and resilient?
Your lawyer wants to know and understand you financial goals and how you see yourself achieving them. Have you considered what you would do if you were unable to work anymore? Do you have friends or family able and willing to jump in if need be?
Another important consideration you might want to discuss with your lawyer is the time it may take to sell the franchise upon retirement.
What are your skills and attributes that enable you to perform so well? Who is most suited to fill your shoes and take over the role?
How can the risks of changing management be mitigated?
It is important to speak with an experienced franchise lawyer about exit clauses and what will happen in unforeseeable circumstances.
Planning In Advance
When you retire, it is quite common for family disputes to arise. This is because the day-to-day operations of the business, as well as the rights to business earnings become contentious.
These types of situations are avoidable, provided you speak with a lawyer about planning in advance.
In partnerships, for example, it must be agreed between the partners how each partner may exit the partnership so that the same rules apply to each partner, usually explained in the Partnership Agreement.
In addition, Buy/Sell Agreements can also assist in the occurrence of an unforeseeable event. If a partner dies, retires, leaves unexpectedly, etc., the other partners have some assurance that the departing partner’s interest can be bought out using insurance policies.
As a franchisee, you should be thinking about the future in case something happens and you can no longer operate the franchise.
The Franchise Agreement
A lot of the time franchise agreements will specify the time restrictions that a franchisee is permitted to be away from the franchise business. The time restriction will usually detail the time limits within which a replacement can be found to operate the franchise in the franchisee’s absence. For more guidance on what constitutes a ‘suitable’ replacement, speak with a franchise lawyer.
Franchisees are also limited in their capacity to affect a sale of the franchised outlet. So to ensure that the system provides the most protection, franchisors usually have the first right to purchase (or buy back) the business, as well as a reserved right to approve/disapprove the prospective franchisee.
The franchisor may also want to look over the proposed contract of sale, revise the transfer of the interest in the franchise, and approve any prospective incoming franchisees.
It will be important to the franchisor that whoever does take over the business is trained before any such transfer occurs.
Likewise, any internal restructuring that takes place, (i.e. an important employee/manager is unable to continue working because of illness/death), will mean that the franchisee will be required to comply with the clauses in the franchise agreement. This includes clauses that relate to unforseen events.
For more information on what to do when you are no longer able to work in a franchise and may need to find someone to replace you, speak with a franchise solicitor.
What To Consider Next
There are several key considerations when planning your post-franchise commitments:
- Obtaining legal/financial advice;
- Assessing your responsibility in the franchise business;
- Organising training for the potential transferee;
- Guaranteeing satisfaction of preconditions to transfer found in the franchise agreement; and
- Being able to proceed with a sale of the franchise in a short time frame.
As a franchisee, it’s important to plan for the worst, as unforeseeable events can happen at any moment and it’s best to be prepared. For any legal advice on franchise succession planning as a franchisee, contact LegalVision on 1300 544 755.