Succession plans ask what will happen when the principal owner/operator is not available.
A succession plan may be coordinated with an estate plan, which contemplates dispositive transfers through sale, and other means. The disposition can also occur by wills and trusts, buy-sell agreements, augmented by life insurance and family partnerships. A valuation of the business is often a key element in any exit strategy, and the succession plan, estate plan and valuation should be coordinated. These issues need to be coordinated with any restrictions that may exist under a franchise agreement on sale or disposition. In addition, state law may invalidate or alter some of these restrictions. For these reasons, the succession planning probably should be coordinated with lawyers familiar with both franchise law and estate planning.
Confronting the Key Questions
- How will the business continue if the operator unexpectedly exists, becomes incapacitated or dies?
- Should the business be continued or liquidated in the unexpected exit of the operator?
- Would it be better if the business were sold in a planned sale?
- In the absence of the operator, who will be on the making these key decisions and should a team be established now?
All of these issues require business and tax planning by a team of professionals.
Make the Decisions.
For the next generation, will ownership be separate from management? If the business is transferred to the children, do they have the experience, skill and motivation to take over? If not, the compensation plan to retain key employees needs to executed now.
Who will be on the succession team and trusted advisers? These specialists should include a franchise attorney, CPA or financial advisor, valuation specialist and a tax savy estate planning attorney, Judgment calls need to be made and the franchisee needs to be well informed.
As Benjamin Franklin said, “Those who fail to plan, you are planning to fail.” Make your succession plan decisions early, and with good counsel to maximize your goals.