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Passing On Your Business

Look around today and your are likely to quickly see many discussions on transitioning your business to the next generation. Face it, the management minds that established the control of the residential industry by cast-in-place concrete are nearing retirement and the second or perhaps third generation of leadership now must take up the reigns. This month, we take our own look at this issue and consider ways that it can be specifically addressed for foundation contractors.

Rather than a single, dramatic movement, the smooth succession of a business more resembles a fl ow of events that occurs over time. The handing over of a company should be graceful, carefully strategized and well executed if it is to be successful. Unfortunately, a majority of business owners neglect to plan for their own succession.

No one likes thinking about their mortality, some owners so closely identify with their ventures that they can’t imagine their product of long hours and hard work continuing without them. Others believe they’re too busy to plan for the day they will leave, and consequently put off succession planning until tomorrow. Leon Danco, founding director of the Cleveland-based Center for Family Business said…

“The toughest thing for the entrepreneur to realize is that time is constantly running out. Most owners don’t plan because they don’t think they are ever going to retire or die.”

Serious illness, disability or death can catch a business by surprise. A crisis such as this brings great upheaval, and it’s difficult to make rational decisions in the best interests of a company when emotions are running high. That’s why a well-thought out succession plan can be an insurance policy if you will, is essential to the continuation of a business, no matter what its size and structure.

WHEN IS THE TIME TO PLAN?

Only about 30 percent of family-run companies today succeed into the second generation. An even smaller 15 percent survive into the third. The reason, according to many experts, is the lack of an orderly succession plan.

Owners should begin planning while they are still healthy and active in their enterprises. “If you wait until after you’re 65, you can’t do many of the jobs associated with succession planning, such as teaching, explaining how the business operates and passing on the spirit and vision with which it was founded,” notes Dr. Michael Sales, co-founder of The Family Business Resource Center in Newton, Massachusetts.

The time to plan is between the ages of 55 and 65, and the handing over of the baton should be a process, rather than a single event. Some succession consultants recommend a three-to-five year plan while others say anywhere from five to 10. Some even recommend 10 to 15 years. All agree, however, that the more time taken for planning, the better the outcome will be.

Adequate planning enables you to test your successors in different roles and evaluate their maturity, commitment, business acumen and leadership abilities. If you’ve already have your successor, adequate planning time allows that individual to build up expertise so the passage transpires so gracefully that no one in the company even feels it happen.

THE PLANNING PROCESS

Begin by writing down your thoughts about when you want to step away from the daily operations of the business. Would you like to spend more time with your spouse? What do you want to accomplish over the next 15 years and how much money do you need? What personal goals could you achieve if you weren’t running the company and what would success in a new endeavor mean to you?

The most effective business plans are prepared by owners with their successors. They include any future new products, plans for expansion, growth or new investment, and an assessment of a company’s current environment and competitive positioning. This joint business plan exercise will give you an opportunity to evaluate your successor’s goals and ideas for the firm, while forcing your successor to think through and write down specific plans for running the operation. And as your successor is putting thoughts down on paper, recommends succession planning expert Mike Cohn in his book, Passing the Torch, you as current owner should be developing a business transfer plan. In it, identify certain “trigger dates,” including dates when:

• You want to begin transferring ownership to your successor.

• Control shifts

• Responsibility for day-to-day operations rests with your successor.

• You plan to formally retire. This timeline will also help you determine the length of time you have available to train your successor, Cohn adds.

ALL IN THE FAMILY

The head of a company has no greater responsibility than identifying a successor who will be equally or more successful in running the operation.

THE DOLLARS AND SENSE OF SUCCESSION PLANNING

The selection and training of a successor will all be for naught if you don’t also develop a financial strategy for handing over your business. Perhaps the most significant activity associated with succession planning, a financial strategy protects your company, your family and your employees against a monetary burden that could doom the entire process to failure. For example, if you plan to turn over your business to your children, you have to think about the heavy gift taxes they will face. If you die, your heirs can suffer an equally prohibitive estate tax.

Heather Bergeron, Member Communications Director, CFA
hbergeron@cfawalls.org

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Concrete FACTS, a publication of the Concrete Foundations Association, is THE voice for residential concrete industry news, market intelligence, business strategies, technical solutions, product information, and other resources for professionals in the cast-in-place concrete industry. Subscriptions to Concrete FACTS is available to anyone involved or interested in the residential concrete industry as a service to your industry. Please contact CFA Headquarters to find out more about your free subscription or Email Us