Keeping It In the Family: How to Pass Down Your Business to a Family Member

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Youíve spent years building up your family-run franchise from the ground. Now, as you approach retirement, or as a new challenge looms, you might be thinking about passing your business on to the next generation of your family. This article explains how to do that without any legal or logistical hiccups.

Maintaining a successful franchise is a task thatís never complete. Franchisors will often spend decades perfecting their formula before they hand it over to franchisees. But when retirement or new ambitions call, either for the franchisor or a franchisee, it can be difficult to hand over the keys to a stranger or close the business. Thatís why passing on the business to children is a common progression for many franchisees who want to ensure the future of their business is profitable.

But, from early planning to signing off a franchise contract, thereís a lot to consider when handing over your franchise to your children. Here are a few points that will hopefully make the process that little bit easier and more fulfilling.

How many family-run businesses are there?

According to the Institute for Family Business (IFB), there are 4.8 million family businesses in the UK. They make up more than 88% of all businesses in the country, including 10% of all large companies and almost half of the UKís medium enterprises. These kinds of businesses are less likely to go bust, as staff turnover tends to be lower and thereís greater loyalty among both shareholders and staff, which means they can often weather storms better.

Whatís more, the IFBís research found that family-run franchises and businesses are more likely to sacrifice short-term financial results in favour of building something with greater longevity. And if thatís the case, it makes sense that many founders of family-run or oriented businesses eventually plan for their offspring to take over the company.

Forbes reported that a large portion of business owners Ė some 85 percent Ė would prefer their business to continue under the leadership of their children, but a much smaller number Ė around 30 percent Ė see this transition occur. And among those that do, less than a third will still be in business three years later.

Handing down a family-run business

If youíve established that a family member is keen to take over your franchise or business, you need to start training them as soon as you can. While many franchises donít require experience, it can take years to gain the experience and skills needed to run a business successfully, so itís never too early to start showing your offspring the ropes. Let them shadow you in your day-to-day activities and establish any areas where they need extra training or guidance. The better your successor knows your franchise, the more likely they are to succeed at running it themselves.

Most families have their favourites, but your business wonít be successful if you donít make a wise decision about whoís going to take over. As Forbes points out:

ďFamily businesses that operate as a meritocracy are typically more successful than those that promote based on family relationships alone.Ē

You need to look at your familyís skills and evaluate which positions theyíre likely to thrive in. It can be tricky not to cause conflict if everybody is vying for the top spot, so look at ways to assign everyone a significant role rather than appointing one leader.

Itís vital to listen to your children about what theyíd like from the business. You might have always seen your eldest daughter as a natural leader and successor, but she might not want the pressure of running a franchise. Alternatively, your quietest child might be bursting with great ideas that could take your business to the next level and would thrive in a role where their voice could be heard.

The legal side of a handover

Franchisees will often find it relatively easy to hand their business down to the next generation. If youíve proven that you can run a successful business, and have established a good relationship with your franchisor, it could be as simple as getting your successor to sign a new franchise agreement in their name. However, itís foolish to assume the process will always be this simple. Your franchisor may have other plans for your location, even if theyíre happy with your performance, like taking it back as a company-owned store or re-selling it to a more suitable candidate.

Broach the prospect of handing your franchise over well before you plan to do so Ė itís never too early to have a conversation with your franchisor. Make sure itís at least a year before your franchise agreement is due to come up for renewal, or a good six months before you plan to step down if youíre on a rolling franchise agreement.

Should I speak to a franchise solicitor?

Youíll also need the help of a solicitor that is experienced in franchise law. Theyíll help you by combing through the franchise agreement and making sure your successor is happy to sign. A franchise law specialist will also be helpful if youíre looking to establish a joint franchise agreement for yourself and your successor(s) in the interim, to make sure it reflects your partnership.

Even if the franchise agreement itself doesnít mention a partnership, itís sensible to have a legal agreement drawn up if more than one member of the family will be taking over. The agreement should outline responsibilities and financial aspects, such as whether the profits will be split equally between your successors. If you donít plan to step down straight away, make sure youíre included in this agreement to avoid the next generation taking over and shutting you out of decisions youíd still like a say in.

What if my children donít want to run the business?

Itís never too early to think about exactly how youíre going to hand your business down to your children, nieces and nephews or grandchildren. Let them get a taste of what you do from a young age and foster open discussions about whether theyíd like to be part of the business one day. If younger kids donít seem interested, donít be disheartened. It may just be too early for them think rationally about what youíre offering them.

If the next generation of your family genuinely isnít interested in taking over, they might still like to work with you. Sometimes, though, youíll have to accept that your family want to make their own way in their careers. If thatís the case, donít force their involvement. Your franchise or business wonít thrive under the leadership of someone who isnít interested. It may be better to sell your business to someone that genuinely cares about its success, even if theyíre not a part of your family.

A Family Affair

It can be hugely rewarding to hand your business down to the next generation of your family and, if you do it right, a decision that can guarantee your children have a profitable business to continue to grow. Check out our other keeping it in the family articles for more tips on how to run a business with family or browse our UK franchise directory.

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