Written by
Matt Frentheway

How to Set Up a Franchise Family Business

A lot of my candidates envision leaving their business to their children.

It’s nice to leave a legacy, but there are some questions you need to ask yourself.

In this post, I’ll share those questions with you.

Is My Child Committed?

Before anything else, you need to see if your child is committed to your business.

I recommend planting seeds early by discussing your business at home. Share both the successes and the challenges. This will give your children a balanced view of what it’s really like to run your business.

I also recommend that you present the opportunity to run your business as an option, not an obligation. If you saw the recent Pixar movie, Elemental, then you saw the issue with presenting your business as a “gift”. It may be your dream to give your business to your child, but it may not be your child’s dream. Running a business is work, and it may not be the work they want to do with their life.

Communicate that it’s your child’s choice whether to join your business. Emphasize that you support them and their dreams regardless of their decision.

Recently, I started a new franchise with the intention of involving my five sons, should they choose to participate. My hope was that many of them would be interested, providing a great opportunity for me to teach them about running and owning a business. However, experience has taught me that forcing them to do something against their will usually leads to resistance. So, when I opened the business, I made it clear that positions were available.

One of my sons took advantage of this opportunity, though not all of them. I'm excited to be working with my son in this new venture, but I also entered this business prepared for the possibility that none of them might choose to join. I'm at peace with that, and I planned accordingly.

Is My Child Capable?

The next step is to assess your child's capability to contribute to or run your family business.

Do they have the right skills, leadership style, and motivations? Are they good at collaborating, persevering, and problem solving?

You can help your child succeed by giving them opportunities when they’re a teenager. You can also encourage them to apply for jobs at other businesses that will give them similar skills.

When they’re older, look at their values, career history, and motivation. Are they truly aligned with the business’s needs and the brand’s ethos?

If you have multiple children, use an objective assessment to create a fair selection process.

Will My Child Follow My Values?

After you pour years of work into building your business, you’ll want to see your successor run the business in a way that you respect.

So, can you trust your child to manage the business as you have?

To answer that question:

  • Assess how well your child understands your principles.
  • Watch how they handle responsibilities.
  • Talk to them about the decisions you face, and ask what they would do. Then share your thinking, and see how they respond.

Ultimately, you’re going to need to assess:

  • Will your child make decisions that align with your values?
  • Will they treat your customers and employees the way you want them to be treated?
  • Will they pay the bills on time?
  • Will they leave enough cash in the business to allow for smooth operations and a rainy day?
  • Will they avoid debt or other forms of risk that can jeopardize the future of your business?

When you’re ready to pass on the business, discuss your expectations. This will help ensure your child takes the job seriously and respects the foundation you've built.

Will This Cause Jealousy?

When you award one child a special role, it can make your other kids feel jealous.

To avoid family tension, communicate openly with your kids about your decision-making process. Have a sit-down meeting and explain, “The best person wins. I’m not going to hire somebody because I love them more. I’m going to hire them because it’s what’s best for the business.”

Have this meeting before you choose a successor. It’s more fair to your kids. It lets them know what to expect so they can tailor their actions accordingly. It will also help prevent resentment once you make a decision. They’ll know in advance that your decision is not personal, it’s business.

Is There Enough Compensation?

To be fair to all their children, many people choose one child to own and manage their business, and they make their other children shareholders.

If you go this route, you need to ask yourself: Does my compensation plan sufficiently incentivize the child who will manage the business?

You need to ensure that the business rewards align with the responsibilities and expectations. 

  • Are the incentives comparable to industry standards?
  • Is the pay better than what your child could get if they went across the street and took another job?

Discuss these aspects with your child to confirm their motivation and commitment. This will build trust and ensure that they are not just taking the job as a favor to you, but because they’re genuinely invested in the business’s success.

Is My Franchisor On Board?

All franchise agreements restrict the franchisee's right to transfer the franchise. These provisions are key to maintaining the brand’s uniformity and quality standards.

Not all franchises are open to the idea of family succession. If your succession plan does not comply with ownership transfer policies, you can actually lose your franchise agreement.

So, if you want to set up a family business, it's important to choose a franchise that aligns with your goal.

  • Look at their record. When you explore franchise options, focus on brands that are known to support family transitions.
  • Review transferability clauses in your area development agreement and other franchise agreements.
  • Confirm any requirements the franchisor might have for succession directly with the franchisor.
  • Protect yourself. Consult with an attorney who specializes in franchising and succession planning. They can help ensure you have enough documentation to confirm any details you discussed with the franchisor verbally.

Do I Have a Succession Plan?

Succession planning is critical for the longevity and stability of your family business.

For best results, you should start this process 5-10 years before a transition.

  • Give each of your kids a fair chance. Don’t let your own assumptions get in the way based on age or gender.
  • Identify a successor. When your kids are in their teens or twenties, discuss with them if they’re interested in running your business later.
  • Provide training to your kids who are interested. The way they respond to your questions and training will help you choose the right successor.
  • Create a detailed plan. Your plan should cover all aspects of the transition, including roles, responsibilities, and timelines. Document it and update it as needed to reflect any changes in your business or family dynamics.
  • Be transparent. Every year or two, hold a family meeting. Use this time to share business updates, clarify roles, and build consensus in your family about the future growth and ownership of your business.

Am I Ready to Give Up Control?

Relinquishing control is often a challenging aspect of succession planning, especially for founders who have spent years building their businesses.

It’s key to focus on the continuity of your business, not your personal control over it.

  • Use a phased approach. Let your successor gradually take on more responsibilities as you slowly step back. This will minimize disruptions and create stability.
  • Provide guidance. However, avoid any undue interference during the transition.
  • Address the emotional aspects. Retirement and succession are emotional. It helps to talk about it.

Do I Have a Buy-Sell Agreement?

Sometimes, a sudden ownership change is necessary. You might have an unexpected health challenge or a change in your living situation.

Consider setting up a buy-sell agreement, funded by insurance, to ensure business continuity.

This strategy protects your business from the financial impact of unexpected departures.

It also provides a clear, agreed-upon method for transferring ownership under such circumstances. This is good for all stakeholders in your business, including your customers and employees.

Wrapping Up

To set up a family business through franchising, make sure you set your children up for success, leave them the final choice over what they want to do with their lives, carefully evaluate the right child to take over leadership. Also, be sure to plan ahead with your franchisor for a transition.

Matt Frentheway

As a successful franchisee and entrepreneur, I can help you find the best opportunity to realize your dream of being a profitable franchise owner. Using my proven process as a franchise consultant, we’ll define your goals, narrow the field, and select the best franchisor for you to achieve financial freedom.