It’s estimated that 70% of family businesses in the U.S. fail after ownership is transferred from one generation to the next. Historically, Dunkin’ Donuts has attracted operators whose aim is always to pass the business down to their children—and beyond. The challenge of completing that transfer successfully and protecting the family’s assets is complicated by the language written into the Dunkin’ Donuts Franchise Agreement.
“Dunkin’ owners face a tremendous hurdle,” says Seth Ellis, managing partner of Ellis & Goldberg, P.L. trusts and estate planning firm and a featured speaker at the recent DDIFO members’ meeting in Newark, NJ. “Understanding the intricacies of the Franchise Agreement is the linchpin to ensuring a successful transfer.”
Ellis, along with business colleague Gary Joyal, managing partner of Joyal Capital Management, L.L.C., offered a snapshot of the challenges Dunkin’ franchise owners face protecting their assets particularly in the face of a life event like death, marriage or divorce.
“The majority of Dunkin’ franchise owners have a substantial portion of their wealth tied up in their stores and corresponding real estate, so we have to be sure those assets are protected in a way that won’t trigger a default in the Franchise Agreement” says Joyal who has been working with Dunkin’ Donuts franchise owners for 20 years.”
According to Joyal and Ellis, one of the most common challenges a franchise owner and his family face when establishing an estate plan is ensuring their team of lawyers, bankers, accountants and insurance brokers are in synch and recognize how their plans will integrate with the Franchise Agreement.
During their 45 minute presentation at the Newark Sheraton, titled, “Pieces of the Puzzle: Plan Integration”, Ellis and Joyal offered the example of two brothers who partnered to buy and run three Dunkin’ shops. Each has children; one of the brothers is in his second marriage. The situation becomes acrimonious when one brother dies and a squabble over ownership ensues among the surviving family members. It’s then further complicated by the terms set forth in the Franchise Agreement.
The moral of the story, according to Ellis and Joyal is that without proper planning from a team that is intimately familiar with Dunkin’ Donuts franchising, families face the possibility of lost assets, damaged family relationships and exorbitant legal bills—as well as potentially losing the right to continue operating any Dunkin’ Donuts shop.
“The typical response we get when we first meet with a Dunkin’ family is that they are all set—they have their documents ready and their team in place. But, after closer examination, we often see that their team is fragmented and the family has tremendous exposure to risk,” says Joyal.
Ellis says families should have their estate documents reviewed often because small changes can impact how the plans will operate in the event of a life change.
“I haven’t met a franchise owner whose shops and holdings remain stagnant. As a result they all need constant review and analysis.”
Over the last 15 years Ellis and Joyal have worked with close to 500 Dunkin’ families to create individually crafted plans. Often times, they work closely with the law firm of Lisa and Sousa, which has represented a majority of New England-based franchise owners. Many of these clients are Dunkin’ pioneers, who have been in the system for 40 years and have successfully engineered succession plans that not only protect assets, but also protect family relationships.
“We got great feedback on our Newark presentation,” Joyal says. “I think it was eye opening for those owners who haven’t thought about how to integrate the team that’s working on their behalf.”