Succession planning and business transition
By Mike Fronchak, CPA CMA
You’ve all heard the hype for many years. Baby-boomer business owners are aging. More than one-third of business-owners plan to exit their business in the next five years. Less than half have a succession plan, and so the story goes.
First, let me start by briefly introducing myself, since this is my first submission on Link2Build. I am a professional accountant by trade, and have spent most of my career in the construction industry in various financial and management roles. In 2006, I decided to start my own firm providing advisory services mainly to the construction and building materials industries. Since then, I have helped several business owners with the challenging decision to divest of their businesses or transition them to the next generation.
This article is meant to start a discussion on your business and succession. For ease of reading, it has been broken into two parts. The first part deals with family aspects of succession and the second deals with “outsiders” for lack of a better term.
Let’s begin with where you are at right now. Have you had “the discussion” with your family, your business partners, your management team, or whoever should be involved in the future of the business after your exit? If you do not have a definitive succession plan at this point, the first thing to consider is how urgent the situation is. Experts say that the timeframe for successful business transition can be 10 years, but you should consider your own situation, age, state of the business and family, if applicable. Try to come up with a timeframe. For example, “I will retire from the business in the year XXXX”. At least that gives you an initial target to start planning around, regardless of the method of your exit from the business.
Communication is a key to any successful business transition plan. The first place you should likely start as an owner is with your family. If anyone in the next generation is interested in taking over the business, you need to consider whether they are capable and what it will take to get them to the level where they can effectively run the business. Take into consideration your key people in the business as well. What will happen to them if a family member is suddenly injected into the business in a leadership role? If the family member has not “earned” that position, it can be a problem. I have seen it happen many times. If your son or daughter (or both) are very passionate about the business, they will be willing to do what it takes as far as education, training and earning that leadership position. Having a frank discussion with them, listening to their concerns, and jointly coming up with a game plan on how all of you reach your ultimate goals will pay off in the long run.
Speaking of family, you also need to have “the discussion” with your spouse. Whether he or she has had an active involvement in the business or not, the decision on when to exit obviously has a major effect on your relationship. In fact, this discussion probably should take place as part of the family discussion described above. Your spouse may have an entirely different idea on retirement or exit from the business than you. Remember, this is both a financial and a lifestyle decision. The two can overlap, but also need to be considered separately.
If the next generation of family is not an option for taking over the business, there are other viable options to consider. Key employees are often a workable option for business succession which is overlooked for various reasons. One of the more obvious, but sometimes most difficult alternatives for an owner’s exit from the business is an outright sale to a non-related party. These options will be explored in my next article.
This article was written by Mike Fronchak, CPA CMA, Fronchak Corporate Development Inc. He can be reached at 519-896-9950 and mike.fronchak@rogers.com. Part two of this article will be published on November 29.