We’re seeing an unprecedented shift in ownership of McDonald’s franchises to the next generation.

So now’s the time to prepare, as McDonald’s Owner Operators have a better opportunity to transfer more wealth to their children with minimal tax impact than ever before. However, a Next Gen transition takes appropriate planning to address these complex transactions with their many moving parts.

Here are your best three steps to get started in Next Gen planning:

Situation Analysis

The first step in developing a Next Gen plan is assessing your organization’s current situation. Questions to be discussed include:

  • What is the desired transfer time line? The longer the time line, the more options that are available for sound financial decisions and tax minimization.
  • What is the current organizational structure, and will a transition require a re-organization into separate entities?
  • Do the owners want to remain as “qualified owner/operator(s)”?
  • If there are family members who are not involved in the McDonald’s business, how will they be included in the overall planning?

Value the Assets

The next step is to get an accurate business valuation. There are many variables that go into an accurate valuation; typically, a discounted cash flow method is preferred over a simple multiple of cash flow. In addition, all parties involved must understand that the final number will be based on the value at the time of transfer. Your McDonald’s business is an investment, and the future value will be determined by the stewardship of the future business management.

Develop Transfer Strategy

The longer the time line for the strategy development, the more options exist. Selling or gifting the entire business all in one year can result in unnecessary tax implications. If you transfer over the course of time, you have a lot more options.

An effective transfer strategy will also take multiple sub-plans into consideration. Those sub-plans include:

  • Strategic Tax Plan: A tax impact study can weigh the impact of current law. Such a study also can consider whether the timeline and goals can be altered to take advantage of opportunities related to the income tax, gift tax, and estate tax.
  • Financial Plan: A mutually-beneficial Next Gen transfer requires a financial plan that looks at all aspects of the family’s financial health, including a careful assessment of each party’s cash requirements. It also should consider the organization’s financial stability throughout the transition process and look at the effect on any future expansion and reinvestment needs.
  • Retirement Plan: A key component of the overall financial plan is the first generation’s retirement plan. Ideally, the family has worked with a financial advisor over time to grow excess cash into substantial retirement assets. What they need to draw from the business will dictate how the equity in the business is best transferred.

If you’re considering starting the Next Gen process, we have a comprehensive Next Gen Academy happening in February.

The Next Gen Academy for Finance & Leadership is designed to support and augment the curriculum required by McDonald’s Corporation and addresses technical areas of the “Financial Skills Development Workbook” so that participants can successfully complete the McDonald’s requirements.

Want to learn more? Get more details and sign up here.

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