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Why failing to incorporate resilience into a holistic franchise development program leaves the growth of the franchise to the winds of uncertainty.
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There was the story of the wife who struggled but ultimately failed to right the business after her husband who was the business’ official owner/operator unexpectedly fell ill. Or the story of the married co-owners whose previously successful business fell apart after becoming a pawn in the mud-slinging of their contentious divorce proceedings, leaving employees, customers and suppliers stunned.
These have more in common than may meet the eye. In both cases, the business was forced to respond to an event that they never saw coming and could have never anticipated. As a franchisor, these examples are not unique, you have heard disruption stories that are similar to these and you will continue to hear even more as your portfolio grows. The fact of the matter is that disruptions are a part of life. As unpleasant as they are, even businesses are not immune from the negative effects of an unplanned disruption.
But while stories like these and the impact that they could have on your franchise may be on the back of your mind, they may fall into the category of events that you may feel powerless to act on. How does one protect a franchisee from disruptions? How is it possible to secure all of the franchisees in your portfolio? After all, resilience could hardly be covered in a franchise agreement. Right? This might sound like an odd comparison, but I think franchisors could take a page out of the resilience book of banks and hospitals.
These institutions are mandated by law to have certain protections in place that protect their operations from planned and unplanned disruptions. There is a reason for this. Experience has proven that having the right measures in place goes a long way in ensuring that the business is prepared to respond appropriately and minimize the impact of unplanned events.
“In the United States alone there are 12 million small businesses owned by baby boomers. Approximately 70% of them will be retiring soon”
‘The Five Ds’ and they refer to an unexpected death, disability, divorce, distress and disagreement. While the COVID-19 pandemic may fall under the category of distress and its impact on businesses cannot be understated, the likelihood of one of the other four major disruptions is probably easier to imagine; although, the impact of any one of these could be devastating for a business, particularly a small business.
The second type of disruption is planned disruption. As defined, these types of disruptions are anticipated and are typically included in the business’ operational plans; relocations and system upgrades may quickly come to mind. However, there is one type of planned disruption that is increasingly on the minds of business owners and the organizations – like franchisors – that support them.
That type of disruption relates to the long-term future of the business and what happens when this generation of leadership retires. The sheer number and rate of baby boomer retirements are predicted to have a significant impact on the businesses they lead. In the United States alone there are 12 million small businesses owned by baby boomers. Approximately 70 per cent of them will be retiring soon. Unfortunately, without the right planning and preparation, only 20-30 per cent of these are likely to be transitioned – via succession or sale – successfully.
“Failing to incorporate resilience into a holistic franchise development program leaves the growth of the franchise to the winds of uncertainty”
How to make your network resilient
Businesses are not powerless. Since every franchisee plays an integral role in ensuring the franchise’s overall success and survival, franchisors are taking steps to proactively secure the resilience of their network of franchisees. Many have taken steps to ensuring that franchisee growth is protected in both the short and long term. It takes a combination of actions to de-risk a business and ensure that it is as resilient as possible. Some of the ways that resiliency could be incorporated into franchise development programs in a holistic way include:
Insurance: This is usually an obvious choice for risk-conscious business leaders; many will stop here. The trick is to ensure that businesses get the right type of insurance with the right amount of coverage. Some business owners opt to cover their business with personal insurance but this is not usually advisable. Insurance, it should be noted, provides a payout when certain covered events are met. However, the payout is not always guaranteed. Business operations may grind to a halt while the insurance company determines the eligibility for payment of a claim. It should therefore be seen as a second line of resilience defense and should always be used in combination with some other resilience measure.
Short-term planning: The best option for securing a business’ operations from unplanned events that can happen at any time, is through a business continuity plan. Business continuity plans are for unplanned disruptions that may happen in the short term. These contingency plans help a business to confidently respond to unplanned events so that they could minimize the impact of the disruption on the business’ operations and recover quickly. A 2013 CMI study indicated that business continuity plans helped 87 per cent of businesses to become more resilient with 82 per cent recovering more quickly from a disruption.
Long-term preparation: Business transition (succession or exit) preparation takes care of planned disruptions that will happen at some point in the future. Just like human life, with or without planning or preparation, the natural transition of a business is a certainty. Business transition planning or some form of exit preparation ensure that right steps are taken, increasing the likelihood of a successful transition. Succession plans are for businesses intent on executing internal transitions – oftentimes, but not always, to someone in the family; while businesses interested in transitioning externally do so via some form of sale.
Agreements: If multiple owners are involved, buy-sell agreements are a good option for managing the purchase or sale of interests of the business if certain triggering events occur. Many business operators are so preoccupied with
“Franchisors are taking steps to proactively secure the resilience of their network of franchisees”
• Short-term planning: Business continuity plans for short term, unplanned events
• Long-term preparation: Succession and business transition planning for successful succession or sale
• Agreements: Buy-sell agreements to manage the interests of multiple owners.
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