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Baby boomer ‘zees tackle retirement planning


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Judy Briggs, center, with sons Chris and Patrick, is setting up the infrastructure to eventually pass her to franchises on to them.

Southern Rock Restaurants CEO and owner David Blackburn is keeping his foot on the gas to continue growing his business. The Franklin, Tennessee-based company owns 85 McAlister’s Deli restaurants with 49 remaining in Blackburn’s multi-unit development agreement. Yet, at 56, Blackburn also recognizes that it’s time to start thinking about slowing down a bit and laying the groundwork for an exit strategy.

Blackburn is quick to emphasize that he has no plans to sell the business anytime soon. But he is looking to the future, so that when that time does come, he has a profitable group of restaurants that are well positioned to sell. “I think an important part of creating an exit strategy is making sure that you have a healthy, well-managed, well-maintained group of assets with a management team that continues to be highly motivated,” says Blackburn.

Judy Briggs is in a similar boat. The Boston-based franchisee, also 56, is in no hurry to retire now—or perhaps ever. Briggs owns two franchise businesses, 1-800-Got-Junk and Men in Kilts. Combined, the two businesses employ more than 40 people, including three of her four sons, Patrick, Chris and Shane. She also recognizes the necessity of putting plans in place so that her sons can run the business without missing a beat, whether she takes a day off to go golfing, or in case there is an emergency situation.

“You definitely need to be planning for the future whether you want to take time off, whether you want to exit the business, or whether you just want to be that silent partner. But there definitely needs to be a plan in place,” says Briggs.

The wave of baby boomers in the country between the ages of 53 and 73 is pushing business succession planning to the forefront for many franchisees. Survey data on small business owners consistently shows that more than half are planning to retire in the next five years, but only a small percentage have a plan in place to transition ownership of that business, notes Sally Stolen Grossman, an attorney at Gray Plant Mooty in Minneapolis. “Oftentimes, business owners are so busy working in their business, they forget to work on their business,” she says.

Transferring ownership

In some cases, franchisees are not only building a business, they are building a family legacy. Their goal is to transition ownership or partial ownership to children or grandchildren. One of the first things a franchisee has to determine is whether or not he or she can afford to transfer the business to family. Sometimes there is a purchase by a family member. But, in most cases, an existing owner is transferring ownership of the business at a very low value or as an outright gift. So, it is important for the franchisee to know that they have other sources of retirement income, and other assets to provide to other children or family members that may not be active in the business.

The next important move is identifying a successor. “Oftentimes, this becomes one of the most difficult steps. However, going through this process as soon as possible will determine whether transitioning to a family member is even feasible, or whether other exit strategy options are warranted,” says Aaron Chaitovsky, a partner and co-leader of Citrin Cooperman’s franchise accounting and consulting division in New York.

Transitioning a franchise business to the next generation also comes with some unique nuances. “The obvious one is that you can’t just do whatever you want with your franchise,” says Grossman. The franchisor typically has to review and approve that transfer of ownership, although there also are some restrictions in the franchise agreement on the franchisor’s ability to withhold consent.

“When you have a franchise, you have to go through the hoops that the franchisor has set up in its effort to protect the brand,” adds Grossman. Some common franchisor requirements include: providing advance notice of the transfer to the franchisor; review of the new ownership by the franchisor that looks at their experience and financials. A franchisee is also required to be current on all franchisee fees, and the incoming franchisee will have to go through much the same training as any new franchisee.

In addition, rules for transferring a franchised business vary from state to state, especially as it pertains to transfers as a result of death of the franchisee. “It is important to understand that the operating business and the franchise agreement are two parts of the whole. You can’t transfer, assign or sell one part without dealing with the other,” says Chaitovskly.

Getting your house in order

Whether a franchisee is positioning the business for a sale or planning to hand the keys to a family member, it is important to make sure operations and financials are both in tip-top shape. Southern Rock Restaurants started doing audited financials for the business about five years ago to ensure that, when the time does come to exit, the business will have the information that a sophisticated buyer would be looking for when assessing the opportunity. Blackburn also has continued to build the quality of his management team so they can continue to drive current and future success if Blackburn is no longer part of the company.

People who buy a large entity want to be able to continue to grow. There is value in keeping a book of expansion in your queue so someone can dilute what could be a higher multiple to buy your business with new restaurants that could be opened at cost, adds Blackburn. He also recommends maintaining healthy leverage so that a prospective buyer can see how the business has financed its growth in the past.

“We work really hard to make sure our lending and our growth plans are all aligned, because it serves our business today, and it also is what makes the business attractive for a potential buyer,” he says.

Briggs worked with an adviser to put financial planning and legal structures in place so that her successors, twins Patrick and Chris, can carry on the business if she is no longer involved. She also recognized that she needed to give them the skillset to better position them for success.

She took advantage of a move by MaidPro to acquire the Men in Kilts brand, which allowed her to bring her two sons in as official business partners. Briggs also is stepping up her role as mentor with Patrick and Chris, who are now actively making business decisions along with her.

“I don’t want them to wake up one morning and all of a sudden they are in charge and haven’t been exposed to any of those soft skills or things that happen behind the scenes,” says Briggs. “So, it is a bit of a controlled environment, but they are learning as we go along.”

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