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A franchise can support a family for decades and still leave the next generation with a difficult inheritance. Planning begins with three questions an owner can answer long before retirement. Who wants the work? What will the franchise agreement allow? How much money will the business produce once someone else is paid to run it?
WHO GETS THE FRANCHISE WHEN THE OWNER STEPS AWAY?
Consider a restaurant owner preparing to leave two children equal shares of her franchise. Her daughter has spent twelve years in the restaurants, most recently running both locations. Her son lives across the country and has a career he enjoys. When their mother says she intends to treat them equally, each hears something reasonable. The daughter expects to keep making operating decisions. The son expects his shares to provide income. The first serious disagreement may come when a refrigeration system needs replacing and the money for it is the same money one sibling expected as a distribution.
This hypothetical family could settle a great deal over dinner while the mother is still at the table. She can explain what she hopes each child will receive, ask what each actually wants and find out whether the restaurants can afford the arrangement. That is the purpose of franchise succession planning. A franchisee has an opportunity to pass along accumulated wealth, a livelihood, or both. Each carries different obligations, and the person best equipped to inherit one may have little interest in the other.
Start while the owner still has choices
For someone buying a first franchise, succession belongs in the review before signing. A buyer who expects a spouse to step in during an illness or a child to take over eventually should learn how both situations would work under the proposed agreement. For an established franchisee, the sensible time to begin is the next planning meeting, even if retirement is years away. A first draft can be modest. Name the person who could run the next payroll, identify who has authority to approve it, and ask the prospective long-term successor whether the job holds any appeal.
Work backward from the earliest date you might want to leave. A successor may need operating experience, brand approval and financing. A lease renewal or required remodel may arrive sooner than retirement and change what the family can afford. Review the plan annually and whenever you take on a partner, acquire another unit, refinance, or learn that a family member’s plans have changed. For a multi-unit operator, put the lease and franchise expiration dates for each location on one page. Two restaurants a mile apart can present quite different opportunities to the same buyer.
An unexpected absence deserves its own instructions. If you were hospitalized on Thursday, who could authorize Friday’s payroll, communicate with the franchisor and tell the managers what they may decide on their own? Give that person access through the bank’s and payroll provider’s authorized procedures, and have counsel check that the authority fits the circumstances. Then take a planned week away. Keep a record of the decisions that still reached your phone. That record is a training agenda written by the business itself.
Find out what the family can actually inherit
Start with Items 15 and 17 of the U.S. Franchise Disclosure Document. Item 15 describes requirements for the franchisee’s personal participation in the business. Item 17 directs the reader to agreement provisions governing matters such as renewal, transfer approval, a franchisor’s purchase rights, and the death or disability of a franchisee. With franchise counsel, follow those references into your signed franchise agreement, amendments and applicable state law. Record any notice deadlines, what happens during an interim manager’s tenure, and what a proposed successor must do to qualify. A family that intends to retain ownership and hire a general manager should have that specific arrangement reviewed.
There is good reason to speak with the brand early. In a 2022 announcement, McDonald’s described a common approach to evaluating prospective U.S. owner/operators, including children and spouses of existing operators. Even in a system with a long history of family participation, an experienced parent had reason to ask how a candidate would be evaluated. Ask your own franchisor what experience it expects, who makes the decision, and whether an ownership change would require signing a new agreement. Have counsel compare the answer with the documents. If there is a landlord, lender or business partner, review their consent rights as well, including the conditions for releasing any personal guarantees.
Give the successor a real job and put a price on yours
A willing successor needs a chance to make decisions while the consequences are still manageable. Give the candidate responsibility for one location’s operating results, including labor scheduling, hiring and equipment spending within an agreed budget. At the monthly review, let the candidate explain an unfavorable result and decide what to change. The founder’s part can be harder. If employees can reverse the new manager’s decisions by calling the owner, everyone learns to wait for the owner. Agree in advance which matters require intervention and give the staff the same explanation.
The financial test starts with a surprisingly personal question. How many jobs have you been doing for one paycheck? Suppose, purely for illustration, a restaurant generates $240,000 a year after ordinary operating expenses but before owner compensation, debt payments, capital spending and taxes. Hiring someone to replace the owner costs $100,000 in salary and benefits. Annual debt payments consume $60,000, and setting aside $35,000 for equipment leaves $45,000 before taxes, changes in working capital or any new buyout payments. If the retiring parent needs $70,000 a year from the proposed buyout, the plan is already $25,000 short. When a daughter or son does the work, the family should still budget fair compensation. Otherwise, the successor is financing part of the inheritance through underpaid labor.
Have a qualified valuation professional assess the business before the family agrees on a price. The U.S. Small Business Administration describes income, market and asset approaches to business valuation. Ask how the analysis accounts for the remaining franchise term, lease economics, required investment and reliance on the departing owner. Then ask the accountant to model the transaction from both sides. An appraised value can be reasonable even when the proposed buyer cannot make the payments. In an asset sale, the IRS explains that allocating the price among the assets affects the tax calculation. The parents need an estimate of spendable proceeds, especially if those proceeds will fund retirement.
Give the family a workable second choice
Return to the siblings with the refrigeration bill. Their mother could bring them together with the accountant to decide how the operating daughter will be paid, how much cash the restaurants should retain, and when owners may receive distributions. The son may welcome an ownership interest once he understands that distributions will vary. He may also prefer another asset or a funded buyout. Where there are co-owners, counsel can build the agreed terms into a buy-sell agreement that addresses valuation, payment terms, funding and deadlock, and reconcile it with the estate plan and franchise documents. The hardest promise to keep is the one that requires the same dollar to replace equipment, pay a departing owner and satisfy an heir.
A sale to an approved manager, another franchisee or an outside buyer deserves serious consideration when no family member wants the job or the proposed transfer leaves too little cash in the business. Compare the family’s after-tax proceeds and remaining obligations with the income and risk of continued ownership. If the buyer offers a seller-financed note, ask what happens to the parents’ retirement income if payments stop. Conversely, an attractive cash offer may hold less appeal for a family with a capable, approved successor who wants the work and can finance it comfortably. Generational wealth can take the form of a sound operating company or sale proceeds the family can invest across several assets. The choice depends in part on how much of the family’s future it wishes to tie to one business.
The next family meeting can begin with a question simple enough for everyone to answer independently. If you had a free choice, what part of this business would you want to own, run or leave behind? Put the answers beside the franchise agreement and a cash forecast that pays the next operator fairly. The gaps will tell you where to spend the coming year. For the mother of those two children, the most valuable act may be giving her daughter genuine authority, her son a fair financial choice, and both of them a chance to remain close when the next refrigeration bill comes due.
© 2026 Franchise Growth Solutions, LLC. All rights reserved.
Sources and URLs
- Federal Trade Commission, Franchise Rule, 16 CFR § 436.5(o) and (q), Items 15 and 17, 2026 edition. https://www.govinfo.gov/content/pkg/CFR-2026-title16-vol1/pdf/CFR-2026-title16-vol1-part436.pdf
- McDonald’s, “The Next Steps on Our Journey of Greatness,” June 2022. https://corporate.mcdonalds.com/corpmcd/our-stories/article/MCD-Journey.html
- U.S. Small Business Administration, “Close or sell your business.” https://legacy.sba.gov/business-guide/manage-your-business/close-or-sell-your-business
- Internal Revenue Service, “Sale of a business.” https://www.irs.gov/businesses/small-businesses-self-employed/sale-of-a-business
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About Gary Occhiogrosso, Managing Parther
Gary Occhiogrosso is the Founder and Managing Partner of Franchise Growth Solutions, a full-service franchise advisory and development firm dedicated to helping emerging and established brands grow responsibly through strategic planning, franchise development, operational excellence, and professional franchise sales. During a career spanning nearly four decades, Gary has worked with hundreds of franchise organizations and has participated in the development and sale of more than 1,000 franchise locations across a broad range of industries.
Recognized as one of the franchise industry’s leading authorities, Gary has been named among the Top 100 Franchise Influencers and the Top 25 Fast Casual Executives. His work focuses on helping entrepreneurs, founders, and franchisors build scalable businesses through disciplined growth strategies, sound unit economics, operational consistency, and responsible franchising.
Gary is a frequent speaker, author, and publisher whose Executive Edition articles are designed to help entrepreneurs make informed business decisions based on experience, research, and practical application rather than industry hype or conventional wisdom.
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Author’s Note
This article also reflects the author’s professional observations and practical experience accumulated over nearly four decades advising entrepreneurs, franchisors, franchisees, and investors throughout North America. Practical experience has been combined with publicly available research to provide balanced commentary intended for educational purposes.