Succession planning starts with honest self-reflection | Laurie Gross

Is it that time? Have you been thinking, what am I going to do next? Are all your friends asking when you plan to retire? Are YOU wondering when you plan to retire? Do you wish you had more time to travel, be with your family, or just relax?

Now what?

The first step in any retirement planning is figuring out the strengths and weaknesses of your company.

Each of the following questions can lead down a different path.

What do you expect from the company upon retirement. Cash? Buyout over time? A place to continue to work? Someone who will take care of your employees and keep the business going? Walk away and don’t care?

What exactly are you selling? The company name, customers, employee agreements, etc.? The inventory? The building?

Once you have answered those questions, you can start to figure out who fits your profile for a buyer. Can it be one of your employees? Are you large enough to do an ESOP (Employee Stock Ownership Plan)? Do you have the team in place for when you do stop working? The buyer may not want you to keep working after a transition period, are you ready for that?

A lot of questions! But the answers to these questions are critical as you start working on your succession plan.

Many lighting showrooms are small “mom and pop” operations. That’s great when they’re running it, but difficult to sell if it’s just them, without a management team to support the company under new ownership … unless the new owner wants to be the new “mom and pop”! Which is great! In that case, make sure your financials show how profitable the company can be as a “lifestyle business,” which means it supports the owner’s lifestyle, but it may not be highly profitable according to the financials.

If that’s you and you have thought about succession, it’s time to find that new person or people. Bring them in with an equity stake and have them work with you to buy out the business over time as they learn. But have a deadline for when they’ll pay the rest of the equity. Otherwise, you know it isn’t going to work and need to make other plans. The same is true if your succession plan includes your children. Make sure you’re all on the same page, and have a time line to decide if it’s going to be successful or if they will need to find something else.

If you’re larger, it’s critical to have people in place that can run the business in your absence. You might be looking for a larger buyer, someone who isn’t going to take your place running the daily operations, so who will do that? Having that team in place makes you much more marketable.

Who could that larger buyer be? Another showroom operator in an adjacent market? A regional player? Or the big guys, Ferguson or a private equity buyer? The answers to those questions relate to your answers above. Is it about the money? Or your heritage/legacy? Your employees? Those will help drive those decisions.

At the end of the day, succession planning is about YOU! Figuring out what you want and what is important, then putting the wheels in motion to make it happen. And don’t wait! If you are larger and you do want your legacy to continue, then it’s time to get that management piece going. If you’re smaller and want the next mom or pop, then who is going to be your next hire? And what kind of conversations are you going to have? And, if you think it’s going to be your kids … do they know that? And are they ready?

As a family business owner, I have had to face all these decision questions. Our company has worked hard to put managers into place so that we have a team running the day-to-day operations that is not dependent on me for daily decisions. This has allowed me to explore expanding our business by purchasing other family-owned lighting showrooms and continuing to grow our company.

We made our first acquisition of a successful family business in July. It’s a great company, and we’re a great company, but that doesn’t make for a great transition.

We have learned a tremendous amount throughout this process. Here are some lessons learned:

The previous owners may care about their people, and the deal may be contingent on certain people staying, but that doesn’t mean everyone wants to transition to a new company, which may include a new computer system. As a current owner, be able to talk about your personnel with the potential buyer and present a strong team. The new company doesn’t want to spend their first months dealing with people problems you haven’t wanted to address. Clean house before you sell; it will make you worth more money.

Know the “ins & outs” of your computer system. What data will be available to the new owners? How easy will it be to convert and import into other systems?

Are your customer and vendor lists updated in your computer system?

What is the situation with your website? Do you control it? Or do you contract it out?

Speaking of contracts, if you are considering selling, now is not the time to sign a 3-year non-cancellable copier or mail machine contract. Think of the future as you are signing those contracts today. That also applies to vehicle leases.

What are you doing with your buildings? Do you have a lease? Is it transferable? Are the lease payments in the financials?  Do you own the buildings? Do you want to sell them? Make sure all the buildings, interior and exterior, as well as warehouse equipment has been serviced and is in good working order.

As you can see, there is a lot to consider in your succession plan!

It’s a great industry, and we all enjoy working in it. And most of us have no plans to leave soon … but it’s always good to have a plan for when you’re ready.

Laurie Gross is the president of Gross Electric, which owns five lighting showrooms in Ohio and Michigan and recently acquired two Indiana Lighting stores.