Every business large and small, from large multinationals to small mom and pop operations really need a succession plan, and from the figures that I have seen very few smaller businesses have taken the time to put one together. As far as I know there are no figures revealing the percentage of independent retailers in our business that have a formal plan for succession, but if there were I can’t imagine it would be all that high, which is why we decided to broach the topic on TalkFloor.
We called in Larry Winter of Winter & Scoggins CPAs to share his knowledge on the subject with us. Larry is a man who has served as our small and mid-sized business expert for some 20 years and you can listen to his thoughts in the TalkFloor.com archives. I encourage you to do that, whether you’ve taken the time to think through a succession plan or if you are the most of us and just keep putting it off.
Larry reminds us that for most small business people their business is their life. If they’re not working 24/7 on the business, they’re think about it 24/7. He says they have created a value, they’re making a good living for themselves and their families and they have most likely surrounded themselves with great employees who have added to that success, and yet they have given little to no thought for tomorrow. He reminds us that the probability of death is one hundred percent – it’s going to happen. And given all that, very few of us really want to be doing what we’re doing now, when we’re 90. The big headline that should be flashing in front of us, Larry says, is: “Do You Really Want to Throw it All Away?”
Many of us, says Larry, have wishes, which he defines as a thought with nothing behind it. It is our wish that the kids take over the business, yet we’ve never taken them aside and discussed it with them. Or maybe we feel like good ole Frank, the guy that’s worked for the company for over 30 years, who would surely want to take over the business. But we’ve never discussed it with him either.
Step number one, says Larry, is to identify exactly who can realistically run the company in the event of the owner’s unfortunate death or disability, or if the owner just wants to just take a couple of weeks off. In the event the candidate of choice is one of the kids, Larry strongly recommends that you don’t make the mistake of following the Golden Handcuffs route. Like you I ask, what the heck are golden handcuffs? I found that it’s a scenario where the kid gets out of school, joins the company and draws a big paycheck, one that’s much larger than anyone would in the rest of the world ever pay him. But the scenario also includes a situation where no one really ever sets out to invest in developing the kid’s business acumen or his technical knowledge.
The wiser choice is to allow that child to get a job on the outside, working for someone else for say three to five years. Such an approach will place him in the real world, where he’ll be paid according to his knowledge and skills and where he will be held accountable. This will also allow him to become familiar with different and perhaps better ways of doing things. With this tact they can return to the business with new and fresh ideas, which will hopefully help the business prosper going forward for another generation.
Larry notes that if your child or the key employee turns out to be the successor and the pick to take over the owner role, they will need (and this is something that probably takes place only in your mind) a badge pinned on their shirt reading “OIT” for Owner in Training. That by the way is not an original idea. It was, according to Larry, an idea that was originated by Alan Lorberbaum, the president and owner of Aladdin Mills, which became a key part of Mohawk and an idea that seems to have proven pretty successful in that the badge winner actually was Jeff Lorberbaum, now chairman and CEO of Mohawk.
All this just really just sets the stage for the real heart of the videos, where Larry spell outs the specifics of exactly what one needs to consider when they set out to formulate a succession plan. Preparing candidates to take over the business isn’t the half of it. He talks about the creation and the timing of the plan, sitting down in the beginning and gathering one’s thoughts as to the specifics that should be included in such a plan, and who should be called in to furnish expertise. Larry touches on the various options for selling a business to the children, a favorite employee, a competitor or someone else – say, a private investor. He reviews the tax features of each option and dealing with the real estate side of the business and the loss factor for not having a succession plan in place. If you’ve been putting off getting busy on a succession plan, this Larry Winter video may be a great place for you to start. Again it’s in the TalkFloor.com archives. Visit www.floortrendsmag.com/talkfloor and just click on TalkFloor TV.