Buying a Franchise with a Family Member

Date AddedAugust 08, 2010 02:43:51 AM

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Siblings Tim and Deb Jones spent most of their careers in the ad world -- Deb in media planning and buying, and Tim in account services. But they were looking for a change and found it in a 2006 New York Times profile of 1-800-GOT-JUNK, a waste removal service franchise. Just a few months later, the sibling duo found themselves in business.

Buying a franchise with a family member can seem as natural as buying one with a spouse, but it can be fraught with even more potential problems. "I think the major pitfall is an obvious one: You can't fire a family member, and business problems can quickly erode lifelong relationships," says Andrew A. Caffey, a franchise legal specialist who has served as the general counsel for the International Franchise Association.

Untangling yourself from a toxic business experience with a family member -- in a franchise, no less -- isn't just a logistical, financial, and legal nightmare; it could wreak havoc on your entire extended family, especially if they like to take sides.

So how can you make sure your relationship with your future franchise partner and family member is strong enough to withstand the pressure of entrepreneurship and create a successful partnership?

Plan ahead. Knowing your business partner your whole life just isn't enough. It can be tempting to do handshake deals with loved ones, but not only is this a bad idea, it's also impossible in the tightly regulated land of franchise ownership. But beyond the legal and financial due diligence you must complete when buying a franchise, you should also make sure you and your partner's visions align and that you enter into this business partnership with clear expectations.

"We all know that family members may tend to let too much go unsaid or, without thinking, fall into unhealthy relationship practices, and the business will be the first to suffer," says Caffey. "Family members have more reasons than most to hire a good advisor who can help them see around these corners."

Define your roles. "We thought the best way to run the business was to divide and conquer," says Tim Jones. He manages the business's truck teams, commercial sales and marketing, guerrilla marketing, training, and on-site supervision. Deb develops the business plan, oversees paid marketing campaigns, and manages finances. Together, they make purchasing decisions and plan their paid marketing goals. "We don't micromanage each other," says Tim. "We may disagree on some issues, but we have been able to come to a decision after talking about the issue."

Brothers Jim and Bob Slattery, who own several Valpak franchises together in Ohio, Pennsylvania, Indiana, and Kentucky, actually do the same job: sales. With so many franchises and the ability to work in different offices, it works.

"Bob and I are the two oldest in a very large family of 10 kids," says Jim. "Early on, we learned you have to just get along and figure it out. Of course there are times when we have our own opinions about how things should be done, especially when it has to do with the sales world. We both have sales backgrounds and run that aspect together, so figuring out how to co-manage sales operations has probably been our biggest challenge."

Delegate wisely. While it's important to define what you and your partner do best and therefore what your roles should be, it's also crucial to make sure neither of you are wasting your valuable time and efforts on tasks that could be handled by an employee.

"In most family environments, each person takes on a set of jobs or responsibilities, but in almost all examples, most of those jobs would be better served being performed by lower-wage employees," says consultant James Sinclair, whose company, OnSite Consulting, specializes in turnaround, insolvency, and repositioning in the hospitality industry. "The issue with families is lack of trust for non-family members. They tend to do all the work instead of delegating, which places their earnings per hour quite low. They also are so involved in the micro that they forget the macro."

Keep in mind, it's not just minor tasks that should be delegated; you also need to hire experts when you need them. "We have left administrative responsibilities to others who have more expertise in them, such as [delegating] accounting to the CPAs," says Jim Slattery.

Fight the urge to engage in nepotism. "I am continually surprised at how many family-owned franchises there are where the family unit is quite dysfunctional," says David Mahmood, whose firm, Allegiance Capital works with small and mid-sized businesses, including fast-food franchises. He particularly sees this problem with parents and children.

"It is difficult for parents to look at their children dispassionately when it comes to judging their management competency and capability," says Mahmood. "Every parent wants their child or children to succeed. But it can be soul-killing for good workers who are employees of a family-owned company to see themselves passed over and a promotion given to a family member who is not as competent or as capable."

However, if your family members are qualified, you can make "keeping it in the family" work. "Our parents were instrumental in raising us to believe in the importance of family," says Deb Jones. "We know that our sisters, brother-in-law, and nephews [who we've hired for our business] all care about our business as much as we do. They genuinely want us to succeed. We trust them all implicitly. We have always had fun as a family and that has carried over to the business."

Don't take work home. The last thing you want the extended family to discuss around the Thanksgiving dinner table is an argument you're having with your franchise partner about a business matter.

"An important lesson we learned from the beginning was to keep personal business separate from our work business, which isn't always easy since we share families," says Jim Slattery. "Living in separate cities has also helped in keeping things running smoothly [Jim lives in Toledo and Bob lives in Cincinnati]. We also chose to not have our immediate families directly involved - it makes things less complicated and family parties more fun."

By planning your business thoroughly and separating your family relationship from business issues, it is possible to create a lasting and strong franchise with your family. Just ask the Slattery brothers: They've been business partners for 27 years.

"When family operators can divide up roles and responsibilities correctly," says Sinclair, "it works like no other management team could."

Laura Tiffany