The Valas Viewpoint: Success Planning Redux
When I last wrote about succession planning in 2010, it seemed to be a looming challenge for independent retailers. Now, though, it’s time to sound the alarm.
In a recent conversation with one of the industry’s banking partners, he estimated that the owners of nearly half of all locally owned appliance, bedding, electronics and furniture companies were nearing retirement age with absolutely no plan for succession.
The reality of that bad news is that historically, when an independent closes, their market share does not go to the other main street merchants but instead, to the big box stores.
As one of the biggest cheerleaders for the independents, the thought of only half as many to choose from is a frightening scenario.
In my experience, I’ve only seen five paths for retirement:
• Transfer to a family member
• Sell to a key employee
• Sell to employees (ESOP)
• Find an outside buyer/investor
• Liquidate and close the business
None are easy and they all take significant thought, effort and planning. Here are some of the most common reasons I find that owners either delay or completely ignore the need for transition planning.
“I have plenty of time.”
We all have heard of friends who either suddenly died or become incapacitated. Without a plan to transfer leadership, when your health fails, your company might not be far behind. Why not use time to your advantage and start considering your options while you and your business are both healthy?
“I never want to retire. I’ll die in the store.”
Is that really what you’ll want in 10, 15 or 20 years? Is that all there is? And planning for succession doesn’t mean you’re doomed to your recliner.
“Giving up ownership means losing control, income and benefits.”
This is best explained by David Scott in The Myths and Realities of Succession Planning For Small Businesses, May 2013:
“Too many business owners see a succession plan as ‘all or nothing’—that changing ownership necessarily means giving up control and reducing income.
However, it’s entirely possible to create a succession plan that transfers business ownership to an eventual successor without losing control or income or—as is vitally important to many business owners—the continued opportunity to build a legacy.
“An owner may still run a business and be paid for that role without the loss of title or any of the other satisfactions of operating an independent business.
“However, the earlier a business owner begins transferring ownership to a successor, the likelier it is for a succession plan to be a success, both emotionally and financially.
“Business owners who think that creating a succession plan isn’t worth the trouble are likely people who have never considered the potential long-term tax advantages of passing on a portion of ownership in the early stages of a long apprenticeship.”