How to Build Generational Wealth Through Franchising

Franchising is a get-rich-slow, exponential growth business strategy. It takes some time to get traction, and the first few years require patience and continuous investment. But with the right strategy in place, franchisors are setting their businesses up for explosive future growth by planting the seeds of success for each successive generation of outlets along the way.

“To build a system that will create generational wealth for the founders, they need to be thinking about the future deal room years in advance,” said Tom Spadea, founding partner of Spadea Lignana Law. “It is important that franchise brands, from very early on, establish the strongest system to ensure that, when the time comes, they are able to exit in an efficient way. Our goal is to be the architect of the contracts and systems that can handle exponential growth.”

In order to understand the long-term plan of a new client, Spadea Lignana starts by asking why the franchisor began franchising in the first place. “Most people become franchisors for the sometimes-once-in-a-lifetime opportunity to build generational wealth for themselves and their family,” said Spadea. “It is a long-term game, and it is hard work. I often tell clients that if you want to double or triple your income, don’t bother with franchising, just open more outlets and build out your operations team. But if you want a shot to multiply your income and net worth by 50 or 100 times, then franchising is the answer. When you think of it in those terms, it makes you think realistically about what it takes for a 100x return on investment.  It is not easy or quick, or everyone would do it, but it is possible and happens constantly in the franchise game. Our firm thinks long-term and tries to coach our clients to plan and build the necessary foundation for the long-term journey.”

Spadea Lignana’s CORE program for franchisors is the way the firm helps their clients build a cost-effective and a cost-certain budget for the ongoing legal needs of being a franchisor. It includes, but is not limited to, annual FDD updates, state registrations and franchise agreement preparation, execution and organization. Through its proprietary cloud-based system, that has been improving every year, Spadea Lignana leverages technology to simplify the process and bring transparency and clarity to the franchise sales cycle. By thinking deeply about the endgame, Spadea Lignana ensures that when a franchisor sells to private equity in 7 to 10 years, all franchise agreements, state registration history, FDD receipts, legal correspondence, trademarks and more will be in one place, ready for a rigorous due diligence dive by their prospective suitors. The foundation for the future deal room is built from day one, so when the time comes to harvest the business, no one has to scramble to put together documents and fill in missing pieces. 

In order to do this, Spadea notes that it is important to be honest about the state of the brand’s current files and to let someone analyze what the system looks like on the back end. “If people are thinking about harvesting their brand, they have to be prepared for an outsider to look deeply under the hood at all the legal documents.” Spadea continued, “It takes a while to organize the documents in a way that investors expect. If you've been around a while, there are bound to be inconsistencies, errors and problems that are much better handled prior to a review from a third party thinking of investing millions in your brand. It's never too early to truly analyze the state of your files and do the due diligence as if you were the buyer. Pretend you're buying your company — what would you like to see? It is much easier to fix some of these latent defects when the pressure is not turned up by the prospect of a pending deal.”

Spadea Lignana will take the time to come up with a reasonable monthly all-inclusive fee that works for the client and for the firm. The firm’s goal is to create a workable and practical plan based on what the client really needs to help them bring their franchise system to the next level. The firm’s mission is to bring to life the passion and vision of the brand and to protect the client from the many risks inherent in the selling of franchises. When the client gets ready to harvest what they have built, Spadea Lignana is always very proud to have played its part and to have helped put them in a better position to cleanly transfer all that they have built to the next owner.

“I like to say that being a successful small business owner is a great way to pay for your kids' college. But if you are looking for serious generational wealth and a way to pay for your grandkid’s college, then franchising is a path worth exploring,” said Spadea. “It is exciting to see clients multiply their net worth by 50 or 100 times in less than a decade. It doesn’t happen every time, but it does happen. I personally believe franchising is the best path to take if that is your goal.  Nothing brings me more professional satisfaction then to have our firm play a key role in helping someone truly achieve the American Dream.”

For more information on Spadea Lignana, visit: https://www.spadealaw.com/