Franchise owners have some particular obstacles to overcome when thinking about succession. Each one has a manufacturer or headquarters that has conditions for ownership and succession, so it’s critical to plan ahead.
“You can’t forget about dealing with developing bench strength, even when facing an uncertain future,” says Ricci M. Victorio, CSP, CPCC, ACC, managing partner at Mosaic Family Business Center. “It’s your bench strength — the pipeline of multigenerational talent — that drives you into success, even if businesses performance is transforming.”
Smart Business spoke with Victorio, who has helped automobile dealerships strategically plan for 15 years, about how franchise owners can fit the puzzle pieces together to pass their business on to the next generation.
What situation do franchise businesses face today?
Many franchises, such as auto dealers, have gone through massive restructuring to survive. But businesses had to watch for the tipping point — cutting the fat and not the muscle.
As we start to come through the recession, these franchises are carefully picking up the pieces and looking to hire the right people. They also are waking up to the fact that time is passing — no matter what the economy is doing — and strategic planning, team training and succession planning cannot be ignored long-term.
This is important for any business, whether a franchise or not, because even in tough times it’s necessary to keep a strategic eye on how you’re going to navigate the future.
How is franchise succession planning unique?
Any franchise that sells a product has to answer to headquarters or its manufacturer. It’s not like a typical family business, because if you’re holding a franchise there is someone above you dictating what the rules are to own that franchise. And if you don’t have business success or an approved successor, they can take it all away. You can’t even sell your franchise without approval.
In addition, you shouldn’t just focus on the development of the next generation. It’s not just talent. If you don’t have enough market share, if your customer service doesn’t meet standards or even if your building isn’t up to specifications, that may stop you from passing the mantle. Not having these in order upon the death or inability of a dealer to continue running his or her store would give the manufacturer a wedge.
How can franchise owners meet these challenges?
You have to present your succession in a pretty package with a bow on it. The strategic plan, the bench strength of your managers, your service, your sales, customers’ reaction to your culture and environment, and the education of your chosen successor all get scored.
Various manufacturers also have required successor development programs. For example, the National Automobile Dealers Association has an 11-month dealer’s academy where developing successors spend six weeks in training sessions and then have homework back at their dealerships for six weeks before returning for another week at the academy.
It can take five to 10 years to get everything in order. You have to think far out, so you may need to start working with an adviser as soon as your children come into the business. Remember, it’s not about being old and thinking about retiring, it’s about having a plan so you don’t lose the business.
Additionally, in a succession plan, you need a short-term contingency plan — what if you don’t come home tomorrow — as well as a long-term plan, such as your kids growing into the business. In the short-term, maybe ensure your general manager has been approved and certified by the manufacturer as a dealer-operator to protect your long-term legacy for the next generation. However, this may come at a price; if someone has qualified to be a dealer, they will want some ownership. An adviser can help you devise creative ways of bridging this succession gap.
Ricci M. Victorio, CSP, CPCC, ACC, is a managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952 or firstname.lastname@example.org.
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