Should you give equity to a manager of your franchise
29th May 2023
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By David Zanker
Step 1: Understand Equity
Firstly, it's essential to fully understand what equity is, how it works, and how it can influence your franchise's growth and your managers' performance. If you're not clear on this, you may need to do some research or seek advice from a financial advisor.
Step 2: Identify Your Goals
Identify your objectives. Are you looking to motivate your managers, align their interests with the business, retain top talent, or something else? If providing equity aligns with your objectives, then proceed to the next step. If not, other incentive structures may be more suitable.
Step 3: Consider the Risks
Consider the potential downsides of equity sharing. Are you willing to accept the risks associated with diluting ownership, sharing profits, or potentially losing control of your business? If you're comfortable with these risks, move to the next step. If these risks seem too great, equity sharing might not be the right strategy for your business.
Step 4: Evaluate Your Business’s Needs
Does your business have the financial and legal capacity to handle equity sharing? Can your current business structure accommodate this kind of arrangement? If your business can handle these implications, move on to the next step. If not, you may need to revise your business plans or consider other options.
Step 5: Assess Your Managers' Aspirations
Are your managers interested in and capable of taking on the responsibilities that come with equity ownership? If they are, proceed to the next step. If they aren't, it may be better to consider alternative reward structures.
Step 6: Select the Type of Equity
Based on your business's needs and your managers' aspirations, determine the most appropriate form of equity to offer. This could include Direct Ownership, Stock Options, Restricted Stock Units, or Phantom Stock.
Step 7: Review Legal Considerations
Ensure you understand the relevant laws and regulations related to equity sharing in your jurisdiction. Are you ready to comply? Can you draft a comprehensive and legally sound equity agreement? If you feel comfortable with the legal aspects or have received proper legal advice, proceed to the next step. If not, seek the necessary legal counsel.
Step 8: Plan for Managing Equity Ownership
Consider how you'll maintain control of your business while sharing equity. Do you have strategies for managing potential disputes and handling equity owners' exits? If you have clear plans for these, you're ready to proceed with equity sharing. If not, these plans need to be developed before going forward.
Conclusion
Reflect on the decisions made at each step. Are you ready to introduce equity sharing in your franchise? If you've confidently navigated each step and have prepared for this change, then you're ready to embark on your equity sharing journey. If you have reservations at any point, it's essential to address them before proceeding. Remember, the decision to share equity is significant and should be made with careful consideration and professional advice.
