After MOVING ON QUESTIONS. For SMaLL businesses By Gary Fievez and Lunell Haught

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1 After YouSUCCeSSIon PLannInG For SMaLL businesses By Gary Fievez and Lunell Haught? MOVING ON QUESTIONS 1. Should your company reorganize based on new initiatives when you leave? 2. What are the critical elements and procedures of your position? 3. How and to whom can these elements and procedures be taught? 4. What type of manager is needed next? W HAT WOULD HAPPEN TO YOUR BUSINESS IF YOU didn t show up to work ever again? Taking time to plan for when a serious event might occur, instead of reacting after it happens, makes the difference in whether your business is able to recover or not. Few founders of family- owned businesses think about the future until it s too late. Over 80 percent of all U.S. businesses are family-owned. More than 65 percent never survive beyond the founding generation. Why do successful businesses just stop? The same reason good cars just stop no plan for replacement parts. If there had been room for one more commandment on the stone tablets perhaps it would have read, Thou shall not jive thyself. Realistically, we have time for what we want to have time for. We may not want to think of our mortality, but we may want to think about how our work will be carried on. Regardless of which square you occupy on the organization chart, the inevitable question of what next should be on your mind. Whether a catastrophe or a warm island is the motive for your exit from work, attention to a few essential questions can mean the difference between crash and continuation. Whether you are an owner or a key executive, succession planning will impact you. The point of succession planning is to give you the option of moving on without damaging the organization. It requires you to ask yourself two questions: Can we attract and retain top talent? And what do I want next? 5. Would a self-directed team make more sense? 6. What personal financial arrangements should you make? 38 Spokane Business Catalyst May 2007

2 Once you have an idea for these two threshold questions, the Moving On questions (opposite page) are the next step in working on your succession plan. Owners have more complex responsibilities than managers. Particularly with family-owned businesses, a decision must be made about the owner s replacement or if a sale or merger makes more sense. A succession plan helps ensure the value of a business is retained when a leadership transition occurs, whether the result of an accident or a plan. The best friend of succession planning is time. Time to work with your advisers. Time to personalize your plan. Time to nurture the next generation of leadership, and time to slowly and methodically implement the sequence of events required for a seamless transition. Change is difficult, but a plan helps provide a guide and comfort in uncharted waters. You will probably not create many succession plans in your career. Therefore, relying on the help of professionals will be beneficial and save you the time you thought you didn t have to complete a plan. We interviewed three companies to show examples of succession planning. Mark Sonderen (left) with his daughter Keva Humbert and son Matt Sonderen Mark Sonderen Sonderen Packaging Sonderen Packaging consolidated ownership of the family business through a process of buying out non-participating family members. For Mark Sonderen, keeping a controlling interest is a key feature of his plan. He has structured the organization to allow family members to decide if they re interested in being owner/managers. After making challenging decisions based on the needs of the business, a serious fire at the Sonderen Packaging plant gave Mark the option of deciding whether or not to rebuild it. He credits his customers, suppliers, employees and competitors for the fast comeback into the market. Especially after the unthinkable happened, he says, I think about the what ifs all the time that s my job. Like most successful owners, he offers the option, but not the expectation, for the Sonderen family s next generation to decide if they want to go into the family business. The business planning has been done, using the expertise of consultants, lawyers and accountants. But it s up to Mark and his managers to help groom the next generation of leadership. His style, although apparently informal, is focused on preparation. Be involved, he advises, and make sure they work i n o p e r a t i n g, s t r a t e g i c m a n a g e m e n t m e e t i n g s, v i s i t i n g c u s - tomers, trade associations and customer service, the hot seat and a great place to learn the whole operation. Family memb e r s a re a w a re t h e y m a y b e p e rc e i v e d a s s p e c i a l a n d c o n sciously work to make sure that isn t a problem. According to Mark, grooming new leaders requires identifying and using their strongest attributes, ensuring they have necessary experiences based on a realistic checklist, and examining those experiences with them. His plan for grooming successors includes having them fill many inter nal roles, participating in trade associations, a new generation leaders group and possibly an Executive MBA. These activities develop mature judgment that employees and customers can rely on. Spokane Business Catalyst May

3 LInda burgin chipman MoVing and Storage Now in the second generation of family ownership, with a third being groomed for the future, this is the only business the family has known, and the love for it runs deep, says Linda Burgin, owner of Chipman Moving and Storage in Spokane. Her succession to the president s spot was an event, rather than a transition. Her background growing up on a ranch and watching her dad run the moving business was her preparation to take over the business when her husband, who had purchased it from her father, died suddenly. Although not involved with the business at that time, she took the helm with the encouragement of her mother, a friend and a helpful employee. She acknowledges, I was inspired every day to make money [because of the responsibility to her employees and customers]. Burgin s real feeling of success came when her company received some of the most prestigious awards in her industry, in addition to Spokane s Agora Award. The value of a hands-on approach meeting with employees and customers is a theme running through Burgin s and other owner s recommendations. Deep knowledge of how the business works, coupled with an idea of what needs to be done and how to do it is essential. If anything, overcommunicating is preferable to under-communicating. Studies reveal that owners typically have a plan in mind, but those who will be impacted by that plan don t know as much about it as they would like. Physical lists and documents, reviewed periodically, provide structure and comfort to everyone. Of course, employees and customers are basic to growth, which has been at more than 20 percent per year for Chipman Moving and Storage for the past several years. Like other savvy owners, Burgin has relied on her special advisers, banker, financial planner, accountant and estate lawyer. She credits her banker as being the only one who had confidence in the company s growth and helped her arrange financing to accommodate expansion. In working with advisers to craft her succession plan, she is particularly conscious about the ramifications of having one child in the business and one child not, and she wants to ensure fair treatment for both the business and her family. Operations Manager Jeff Burgin worked for a similar moving company (or agent) in Pennsylvania at the beginning of his career that allowed him to improve his leadership skills. Once he came to work for the family business, he was prepared to fill various roles and increase his involvement in other aspects of business management. He s also been involved in industry associations, and Chipman Moving & Storage has taken full advantage of the Profit Enhancement Group, an independent organization of moving company executives. Using a prescribed format, members periodically critique themselves, as well as their peers. The last question in the critique asks, What is the succession plan? 40 Spokane Business Catalyst May 2007

4 ProFeSSIonaLS For YoUr SUCCeSSIon PLannInG TeaM: EACH HAS A UNIQUE PERSPECTIVE AND HELPS CREATE THE MOSAIC OF YOUR SUCCESSION PLAN. SELECT THE ONES NEEDED FOR YOUR SITUATION. ATTORNEY - acts with your CPA or EA to plan tax consequences of your plan, in addition to writing your will. Legal Counsel can provide help with Employee Owned Stock Options (ESOP) as a way to continue your business and take care of employees. You should at least have a buy-sell agreement if you have a partner, ensuring you don t end up with your partner s spouse as your new partner. BUSINESS/MANAGEMENT CONSULTANT - coordinates components of the plan and analyzes scenarios to help you decide on a strategy. Look for someone who s experienced, has credentials and is affiliated with a professional association with definite standards and ethics. INSURANCE PROFESSIONAL - helps you consider both Life and Disability insurance plans, which will provide funds to pay off mortgages, buy-sell agreements and hire key replacements. Also, pay attention to Casualty and Overhead protection to care for business interruption consequences. REAL ESTATE AGENT AND/OR APPRAISER - provides advice if your company owns or leases property. TAX /ACCOUNTING PROFESSIONAL (CPA OR EA) - helps consider consequences of gifts, inheritance, and sales or mergers. CERTIFIED FINANCIAL PLANNER (CFP) - coordinates attorney and tax professional input to fit your personal financial plan into your business plan. BANKER - provides short and long-term methods to ensure cash flow and other financial considerations. PSYCHOLOGIST OR COACH - helps clarify what you really want to do and how it may impact you, your family and your employees. BUSINESS VALUATION EXPERT - helps if the valuation of your business is tied to your planning process. If your intent is to transfer the business to a family member, for example, there may be different considerations than a sale to a competitor or a merger. Spokane Business Catalyst May

5 Mark Forman and Frank Swoboda Corner Booth Productions, Inc. This privately owned business has enlisted various advisers to assist in the successful launch of their five-year-old venture. Privately owned businesses have much in common with familyowned businesses. Forman and Swoboda, co-owners of Corner Booth Productions, agree. We would not be where we are today without our team of advisers, they say. Their strategy of listening and follow through is paying great dividends. Corner Booth is in the midst of developing their succession plan. A business consultant acts as the hub of the planning wheel and meets with each adviser and acts as an interpreter to the business owners. Corner Booth lists their banker as one of their prime assets in business and planning to ensure funding of the company s operations. Their bank is a preferred SBA (Small Business Association) lender that provides them direct contact with the decision-makers for their line of credit and their term loan utilized for growth and operating capital. As these companies demonstrate, personal and business, issues must be addressed during the planning process, particularly for family- owned businesses. Funding is a main issue in succession planning to allow seamless transfer of ownership. One way funding can be secured is with insurance. An insurance professional can assist in identifying the correct life insurance product, as well as disability insurance and disability overhead insurance. This allows for running the business and provides for the spouse, reducing the likelihood of a fire- sale situation. Key employees, partners or even worthy competitors can be beneficiaries to the funds that will allow your business to be purchased when you either retire or pass away. Transferring the business to family members requires careful consideration because of estate and gift taxes, as well as the personal impact of inserting a new grieving family member into the company. A tax-professional familiar with your accounting and tax situation is another valuable asset to your planning team. When seeking competent accounting and tax advice, it s wise to seek out someone with a CPA (Certified P u b l i c A c c o u n t a n t ) o r E A ( E n rolled to Practice before the IRS) credential. This adviser becomes the conduit between the past and future when transferring a business. Either credential has a strict code of ethics. Whether you own or lease, it s prudent to have a real estate adviser on your team. As in most professions, real estate agents have their specialties. Seek one that best fits your needs. Someone who specializes in retail space, for example, will have a different set of skills than an agent who focuses on industrial properties. 42 Spokane Business Catalyst May 2007

6 How To GeT STarTed Ideally, five to ten years is needed to execute a succession plan of a family-owned business. Adopt the theme, Implement now; perfect later. Sufficient planning time allows you to test potential successors in various roles and evaluate their maturity, commitment and leadership talent. There is no such thing as a perfect plan, so make it a work in progress. STEPS FOR CREATING YOUR SUCCESSION PLAN BLUEPRINT: 1. Step away from the daily routine and tyranny of the urgent in order to put your thoughts in writing. (A common reference for this step is The Gut Dump. ) Ask yourself: Do I want to have more time off sooner than later? Identify what you want to accomplish over the next 5-15 years. How much money do you need to realize personal goals and allow you to back away from your business part time or forever? 2. Establish your team of advisers. Meet with them individually or collectively. Your advisers will allow you to gather the appropriate information in order to consider options and make the best decisions. 3. Discuss the long-term stability of your business with your executive team or trusted managers. Gain their perspective and interest in the future of your company. The most successful plans are prepared in collaboration with owners, advisers and successors. This joint process allows you to identify your potential successor s goals and ideas. 4. Create clearly-written job descriptions of all executive duties. Start with yours and work through the rest. This is critical for a company s ongoing operations and services to its clients. 5. Strategize your organization s short- range and longrange program and project goals. This should include funding requirements and resources. Include a directive, a communication that clearly outlines your message of transition to employees, customers and the community you serve. Use your responses to the Moving On questions to help you. 6. Create a timeline with key dates for critical components of your plan. For example, if you are grooming a family member to assume leadership of your company, a timeline may look like this: For five years after graduation, he or she works outside of the family business to gain job experience and confidence. Then for the next five years, he or she works in the company in various departments to learn your business from the ground up. If time allows, use the next ten years to groom this person for leadership. Be realistic in expectations and communications. As you teach and groom, make no commitments to an eventual leadership position. The position must be earned, not given. This advice is good for non-relatives as well. 7. Review your succession plan and update it annually. A good trigger date each year is your birthday for business planning and your anniversary ( if you are married) for your personal/ family planning. Based on what we know about succession, it s better to have a plan than an event. If you don t decide in time, SBC time will make the decision for you. CHeCkLIST: For PreParing to Meet With Your advisers Five years of personal and business tax retur ns. Personal and business financial statements ( most current). Legal documents, such as (but not limited to): Lease Employee agreements Buy- sell agreements Customer contracts All insurance policies Non-disclosure/ confidentiality agreements Patent agreements Option agreements Retirement Plan Trust Documents Health Care Directive Power of Attorney Will Most current business plan. Formalize the gut dump into writing. Identify worthy successors. List, in detail, who your competition is and why you view them as such. Draft an emergency survival plan for immediate review. Commit to follow up and follow through. Remember: implement now, perfect later. BONUS: Form a board of directors. A competent board of directors is one of the most successful tools of a seamless transition and continuity of business. Gary M. Fievez, CMC, is a certified management consultant and owns Corporate Resources, Inc. He can be reached at (509) or gary@ GoCEO. net. Lunell Haught, PhD, is a certified management consultant and owns Haught Strategies ( haughtstrategies. com). She can be reached at (509) or lunellh@aol.com. 44 Spokane Business Catalyst May 2007