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Should you buy a franchise with your family?

PUBLISHED ON 26TH OF APRIL 2016 ONLINE – FRANCHISING MAGAZINE (by Noha Shaheed)

The best things about a family are that you can completely be yourself. Unconditional love is a significant part of the relationship, and you have each other’s backs. Differences can occur from time to time, but you know your family members like the back of your hand; their favourite restaurant, ice-cream flavour, and their pet peeves.

image: http://www.franchisebusiness.com.au/getmedia/f8dec544-7432-4c91-bc3e-01f96b0f758a/swift-locksmith-exeter-keeping-a-family-safe.aspx

A family affair - should you franchise with your family? Image: Swift Locksmiths

But should you buy a franchise with them?

Shane Steinwall, CPA at Axis Accounting, says the benefits of buying a franchise with family limits financial risk, allows members to harness their talents and skills for the business, and allows franchisees to demonstrate a greater sense of loyalty and commitment to each other and the business.

“Family run franchises tend to be less driven by short-term financial results and are prepared to sacrifice short-term gains for the achievement of longer-term goals, which allows them to align the deployment of resources with their strategic objectives,” says Steinwall.

“A family run franchise could provide financial rewards to both active and non-active family members,” he adds.

“When entering into a franchise with family it would be best to clearly identify the roles and responsibilities of each family member and preferably have this written down.”

Steinwall says that family members need to have a good understanding of their financial situation. Potential franchisees should research the market and as many franchise opportunities as possible to understand what their financial obligations will be, and to be sure that income can support monthly fees and financial goals are considered before hiring staff.

“Cash/equity available, the liquidity of such equity, and their net worth should be understood before (families) commit themselves to a franchise.

“It may be necessary to consider a side agreement between family members on how the franchise would operate in the event of a members exit from the franchise.”

Steinwall says common misconceptions are that family-owned franchises will ensure prosperity, a view that franchisees are their own boss, and the business can run without the franchisees.

“It is essential to focus on communication, transparency and trust between members in order to be successful in any family-run business – whether it is a star-up or a franchise,” he advises.

“Always document business policies and keep records of business meetings.”

It isn’t wise for franchisees to keep everything within the family, especially in terms of roles, he suggests. Family members may not always possess the necessary talent or skills required by the business, so it is important to determine skill shortages and hire appropriately trained staff.

Jane Garber-Rosenzweig, principal at Gable Lawyers, says that although there are examples of highly successful franchisees who have bought a franchise with family members, it can be problematic if shareholders don’t feel empowered to disagree.

“If there is a fallout, issues can be harder to solve,” she says.  “There has to be a mechanism by which families can resolve things if problems arise.”

This is because factors such as family changes, divorce, and children can complicate things, unless there is a solid partnership agreement and business structure.

“All of these factors need to be addressed with clarity,” advises Garber-Rosenzweig.

In her view, there is an assumption that the business will work out, which is why those “uncomfortable” conversations about structure, shareholder agreements, and roles become difficult.

Her advice to potential franchisees considering buying a franchise with family members is simple.

“You have to write a partnership agreement upfront, structure your business, and understand the consequences.

“Going in as a company or company with a trust attached may be a better way to do things,” she says.

John Di Natale, founder and managing director of Big Think Business Booster, says that buying a franchise with family members can be beneficial as partners are familiar with each other’s character traits, strengths, and weaknesses.

“However, if things go pear shaped, it can cause both business and family issues,” says Di Natale.

He says there have been some instances where family franchisees have been enormously successful, but the correct formalities need to be taken.

“Families tend to downplay issues,” he adds.

In his experience, Di Natale says that there can be a tendency to take shortcuts: skip advice, neglect to form the right partnership agreements, structure, and exit strategies.

He says that these aspects are often “done on a handshake” as there is a perception that a family business can last forever.

Di Natale advises potential franchisees considering opening up shop with their family to “treat it as though it is any other partnership”.

“Be careful not to carry family relationships into business and vice versa,” he says.

So how do you make the family business flourish?

A father and son duo at MBE

Duncan and Curtis Vincent, the father and son franchisee team at Mail Boxes Etc. Point Cook, has recently become a father/daughter partnership as Duncan’s daughter has recently joined her dad in the business.

“After serving 20 years in the corporate world, when I decided to buy into a franchise, I decided my family members, especially my son, would be my partner, my employee, my right hand man,” says Vincent.

His son joined the business when he was 18, and after spending four years in establishing the business and gaining the fundamentals of owning and running a business, he has moved onto other projects. Vincent’s daughter Bronte, who just turned 19, stepped up and decided to join the business.

The benefits of teaming up with the family are closeness, familiarity in values and each other’s work ethic, as well as their common goals and vision for the business.

“We know how each other work. We know what makes each other tick. And we also know, in good times and in bad, we have each other’s backs,” he explains.

“As owners of the business, we just don’t work in the business but also on the business: growth strategy, employee skills, business planning, product diversification, financing, (and) marketing plans.”

Vincent says that balancing out competing and conflicting personalities are one of the biggest challenges. The key is compromise so the team does not lose sight of the common goal for petty differences.

His advice for families thinking of opening a franchise together is clear.

“Ensure every family member wants to do it out of their own free will. Never pressure a family member to get involved until they are ready and want to do so.”

And managing family time is a discipline.

“Work time is work time; family time is family time; and never the twain shall meet,” says Vincent.

A father/daughter team at Quest Apartments

Nicole Carr and her dad Michael are the franchisees at Quest Apartments in Chermside, Queensland and champion mutual respect and communication as key drivers of success.

image: http://www.franchisebusiness.com.au/getmedia/89379914-6d2b-45c8-bf77-a20bb4c26218/Carr_Quest.aspx

Keeping it in the family: Nicole and Michael Carr, Chermside franchisees. Image: Quest Apartment Hotels

Nicole Carr says the best thing about going into business with her dad is that she is working with someone “you know, trust, and can learn from”.

Her father’s previous management experience working at Caltex has allowed him to bring his knowledge to the table. Add in her work experience as an employee and they bring the best of both worlds.

“Our management styles are different,” explains Carr.

She says that communication and defining roles based on each other’s strengths and weaknesses can be challenging, but having those conversations and experience has allowed mutual respect and understanding.

Carr says a common misconception about going into business with family is that it will be easier than going alone or forming a different partnership.

Her advice for potential franchisees is to seriously consider the financial repercussions of buying in with family by researching, no matter who the partner is. She also suggests that franchisees should ensure there is a distinction between personal life and work life.

“Don’t let your personal issues affect your work and vice versa.”

Top tips for the family franchise:

Before you buy:

  • have those “uncomfortable” conversations: set up a partnership agreement outline roles, business structure, and exit strategies
  • speak to experts: don’t assume everything will run smoothly, make sure to seek advice from legal and financial experts, and speak to existing franchisees who are in business with their families
  • understand your financial position: ensure that you and your family are financially able to undertake the investment, and keep up with ongoing costs throughout the term

Running the franchise:

  • be honest and communicate: be clear about your expectations, skills and limitations from the franchise
  • don’t bring work home and vice-versa: be careful not to let your personal relationships spill into your ability to work together professionally

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