When Glenn and Martha Dodd opened their Fastsigns franchise in 1994 in Houston, their goal was not to create a family legacy. They expected that their children, Helen and Philip, would chart their own courses in life. But as the kids grew up and began working in the store after school and in the summertime, it dawned on the Dodds that Fastsigns might be a viable career path for the whole family.
"When we started, having a family business was not an objective," says Glenn, who eventually opened a second Fastsigns franchise. "We wanted to find something we enjoyed doing, and Fastsigns was a really nice fit. I won't say I was surprised when my children showed interest in the business. It just sort of evolved that way."
Sharing a business can do much to strengthen familial bonds. But passing a family business from one generation to the next can be a complicated process. For various reasons--fear of mortality, or the inability to let go of an enterprise that was years in the making--the original owners often fail to discuss with their families a plan for what should happen if they die, become ill or take an early retirement.
Leaving succession plans up in the air is an almost certain death sentence for a family business. According to the International Franchise Association (IFA), only 30 percent of family-owned franchises make it to a second generation. That's in part because, above and beyond any emotional issues related to succession, the franchisor has veto power and is the sole decider as to whether Junior is qualified to step in as boss.
"A few years ago this was a small issue," says William Slater Vincent, a Georgia-based attorney and professor at Life University who co-authored the IFA's handbook Franchise Succession Planning and Transfers. "But franchising has grown by leaps and bounds since 1980. Now we've got a full-force turnover going on, with so many people retiring or passing on. More and more children want to continue the family franchise."
Although the desire is often there, few franchisees take the appropriate steps to make successful generational transfers. "As far as any real succession planning, I'd be surprised if 10 percent of franchisees do anything beyond lip service," Vincent says. "With franchising, there's a problem on top of that fundamental problem. I've worked with franchisees from over 100 systems, and every single franchise agreement I've seen clearly states that if the franchise owner dies, the franchisor has to approve the successor."
While this may sound unfair, especially for franchisees who spend decades building equity in their businesses, the clause exists to protect the entire system. "Franchisors don't want just anybody taking over their franchises," Vincent says. "I don't know how many times a husband dies and his wife takes over the business even though she was never involved before. Instead of being a viable business, it becomes an asset sale. Franchisors don't want that."
Every franchise has different requirements for succession. Some franchises have an informal system wherein a local rep simply signs off on the transfer. Others don't seem to pay attention at all. Still others insist on asset and training requirements that are just as rigorous as the qualifications for new franchisees.
In the case of the Dodd family, the process was relatively painless. After working for much of their lives in their parents' Fastsigns stores and taking ownership classes, the Dodd kids easily qualified for an ownership transfer. In 2006, Glenn Dodd gave his son a 25 percent stake in one store and his daughter the same stake in the other; he then allowed each to buy up to 75 percent ownership of the operation--including a mandatory 12 percent stake in their sibling's store.
"The idea was to bind them together a little bit in terms of business planning and operations," Dodd explains. "It encourages cooperation. The business has brought us all closer together, and we all value each other's knowledge and experience."
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