Planning a Successful Business Succession

One immense problem all business owners need to face at some point is the issue of succession. When a deal qualifies for bank financing, the seller receives the sale proceeds as a lump sum that makes them financially independent and able to retire. We face a different situation when the buyer needs to pay the purchase price for the business over time from revenues. In these cases, the seller’s retirement is dependent on the buyer’s ability to be successful in running the business. Here, the seller was a franchisee.

Situation

After getting the franchisor’s clearance, the seller was seeking a buyer of a disaster recovery franchise business. Typically, a new franchise owner has a proven path to success – a roadmap embodied in the franchise documents. The trick is execution. It is critical to the ongoing success of the business that the new owner master each function of the business. These functions include:

  • Estimating the cost of new jobs,
  • Purchase and maintenance of a fleet of vehicles and various disaster clean up equipment
  • Hiring and managing workers
  • Dealing with distraught home and business owners
  • Dealing with a real estate lease
  • Managing IT, financials and accounting
  • Most importantly, understanding the politics involved in convincing insurance agents to call you as opposed to the competition after a disaster.

So, a personality, willingness to work hard along with a general business acumen were a must for any new owner.

Planning a Successful Business Succession

Solution

We did not attract an applicant with experience. Instead, we found a candidate with obvious potential. To help make sure this business succession succeeded, we created a conditional initial position subject to a six-month probationary period. This involved specific goals and deadlines for the candidate to prove he could learn and handle each of the tasks demanded by all franchisees in the company. The selling franchisor’s task was to measure the candidate’s progress at each step of the way. Knowing his retirement depended on the success of the plan, he was fully focused on helping the prospect succeed.

Fortunately, the candidate, who had clear goals and direction excelled at each. At the end of the probation, the business sale was closed with a combination of a cash down payment and a secured installment promissory note. As an additional safeguard, we created a fail-safe procedure where the selling franchisor could recover the franchise in the event it needed to be saved from financial collapse.

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