Though prospective buyers would periodically pop up, the Winanses’ broker narrowed in on one hot candidate last spring, and the deal was sealed just a few months later. “It made sense to us to work with a broker even though, ultimately, it may have cost us more money because you have to pay the broker a commission,” Nina says.
Working with key players, such as a broker, an attorney, and a CPA, will not only alleviate headaches, it can also safeguard your assets and future. “Get your team together. They can help sort out the possibilities,” Weinstein advises. “Often an insurance agent, an accountant, or a lawyer who is familiar with the business can provide good, unbiased opinions.”
You also need to talk about taxes, which can not only be complicated but also will vary from state to state. “The tax consequences will depend upon the nature of the ownership,” Weinstein adds.
PUT IT ON PAPER Much like when you started your business, creating a succession plan will require diligence and patience. “Succession plans can be structured in different ways depending on how the business is owned, such as a corporation, a partnership, or a sole proprietor,” Weinstein says.
For Deimler, tackling a succession plan included a number of considerations, including transferring stock options from father to son, purchasing a key-person insurance policy, and obtaining a full valuation of the company. Although Deimler knew within a couple of years of joining the company that he’d like to someday run it, his dad danced around the idea of succession planning for a few years before the younger Deimler forced the issue. “I had seen things happen in other family businesses, where it’s promise, promise, promise, and then nothing happens,” Deimler says. “On top of that, I didn’t want to see my dad get hurt financially because he didn’t make the necessary arrangements.”
The first step was drafting a buy-sell agreement. Next was the slow process of gifting shares from father to son via estate planning. Another potential complication was the fact that Craig Deimler isn’t an only child. However, neither his brother nor his sister is involved in the company. To minimize family conflict, Deimler advises remodelers to identify a successor along with crystal-clear expectations and roles. “Whoever that successor happens to be, the parent needs to make clearly known: This is the person who is going to lead the company.”
Another component that must be clearly defined is who gets what during and after the transition. “Details are important,” says Weinstein, who advises that everything be put in writing. For example, if a big contract is signed just before heading into escrow, you must define whose job it is and whose profit it is, Fisher says. “These questions need to be answered up front.”
Remodelers also need to be honest about their businesses, including profits and losses, employees, equipment, and jobs. “You have to be completely above-board all the way through,” Fisher says.
That includes being honest with your employees. Too often in succession planning, employees are either an afterthought or get lost in the shuffle. Some business owners are afraid employees will be despondent, angry, or may even jump ship when told the company owner is creating a succession plan. “You need to address the issues and concerns your key employees have,” Weinstein says. “Make them part of the process and create realistic expectations.”
You should also expect succession planning to eat up your time. “There are so many different opportunities and different methods for succession,” Deimler says. “You have to find the one that will work for you.” He suggests enlisting the help of a financial planner to look at how your succession plan will affect your personal assets and taxes over the long term.
And plan for the unexpected. “This is a very complicated sell,” Fisher says. “You have to be willing to be flexible and willing to work with the buyer. The lines of communication between the buyer and seller are so important.”
MOVING ON Another factor to consider in succession planning is the emotional side of selling your business. Typically, most buy-sells are quick transfers and the new owner will likely swiftly move in and run the company as he or she sees fit. “You have to walk away,” says Paul Winans, who had new ventures lined up even before escrow closed, including one-on-one consulting and becoming a facilitator for Remodelers Advantage, a consulting firm specializing in the remodeling industry. The Winanses have also begun major restoration on a home they purchased in Oregon five years ago. “By having all this stuff happening, the thought, ‘What am I going to do?’ doesn’t pop up,” Paul says.
Even if retirement still seems light-years away, remodelers who plan for it — or for the unexpected — will benefit by being better prepared. “It is an additional job to run your company in a way to make it attractive enough so that someone would want to buy it,” Nina Winans says. “It’s more work than if you just want to run the company.”
Having the systems, procedures, equipment, and employees in place, “really takes work,” adds Paul. “But in order to deliver a really exceptional experience to a client, you should be doing those things anyway.”
—Amy Campbell is a freelance writer in Phoenix.