Jack had owned and operated his pavement maintenance company for almost twenty-nine years and with the exception of a few lean years in the early eighties had witnessed his company’s growth each year. He and his wife, Jerri, had put two kids through college, one that had joined them in running the business after they graduated. After two years the “kid” was beginning to get a feel for the financial aspects of the business. Jack and Jerri were beginning to wonder if this wasn’t the right time to start thinking of turning the reins over to their son.
If you are a little gray around the temple this scenario is probably all too familiar. If you are just beginning your upward path in ownership this same scenario will become familiar, maybe earlier than you might imagine. For a business owner, the second most important objective to accomplish after running a profitable business is to insure that their exit strategy from their company is done seamlessly, without even a faint dip in production, loss of invaluable people, and profits.
There are three simple “laws” to building value for your exit strategy that I want to present in this article:
- Clarify Your Life’s Purpose/Mission
- Define Critical Roles & Responsibilities
- Entrust Your Company to Knowledgeable People of Character
1. Clarify Your Life’s Purpose
It is extremely vital to your own mental health that you are clear about what you “want to do with your life.” Having a plan for the next part of your life is smart and life saving. Many contractors go crazy when they finally leave their business think that retiring to golf, fishing, traveling, or taking care of grandkids is going to satisfy their thirst for satisfaction. I know because I’ve been engaged with many pavement maintenance contractors who have struggled with letting go of their business.[pullquote]It is extremely vital to your own mental health that you are clear about what you “want to do with your life.” Having a plan for the next part of your life is smart and life saving.[/pullquote]
Before you ever begin to plan a transition you must come to grips with what you will do to occupy your time once you’ve really exited your company. You can always fish, travel, etc. Heck, you can do that before you exit. No, you must begin to consider what more with your life do you want to develop. Let me share a few brief examples of what some of my retiring friends have done once they left their construction business.
- Served on boards in a consulting position.
- Provided business advice to small company owners.
- Joined a ministry that engaged their business knowledge or construction experience.
- Acted as a trainer for their company of new employees.
- Moved into a “business development” role for the business.
Now, not all of the possible roles to move to require a full week of work. For many owners they want to keep the taste of competition fresh in their spirit without knocking themselves out for forty to sixty hours of work each week. Based on my observations of many pavement maintenance organizations having an experienced veteran around for advice giving or simply just listening can strengthen the overall productivity of the business.
If part of your purpose is to remain connected to your company it is just as important that you realize just what role you will play and the contribution you intend to make. That leads us into the second law to consider enforcing upon yourself.
2. Define Critical Roles & Responsibilities
You will do more harm than good for those left behind to lead your company if you do not define the critical roles and responsibilities of those individuals. Even if it doesn’t appear that there will be much of a turnover of people it is still good business acumen to sit down well before you exit and clarify who will be doing what, when, where, and how.
If your son or daughter will be taking over the reins of the business then it is very important that you assist them in spelling out what their job will require. Likewise, it will be helpful to your child that other leadership positions in the company are well defined. This effort is especially beneficial if many of the other leaders in the company had been hired and led by you over the years. These employees will only naturally feel some remorse with your departure about having to deal with “Jr.”
Once you have defined critical roles and responsibilities for the company it will be good to have the people represented by the roles to meet and discuss openly. This will facilitate a better understanding as to what the new chapter in their life will read like. It will also assist your son or daughter in positioning what they will want and need from those individuals in the positions defined.
Should you remain in some capacity for the company then you need to be very clear as to what your role and responsibilities will be. For example, if you had developed good relationships with bankers then perhaps you might continue to operate in this capacity for a period of time. If you handled relationship control with material vendors but feel that your successor should handle this important duty then you must be clear in your role going forward not to allow the material vendors to complain to you when your son or daughter do something they (i.e. vendor) do not like.
If your spouse has been the book-keeper and intends to exit with you then you will also want to tighten up their new role. It is very common to have the spouse, who for twenty-nine years made the deposits, called on late payments, corrected payroll mistakes, etc. find it difficult to walk away. This must be clearly defined as well or there will be a quiet rebellion brewing by those left behind to take over book-keeping tasks.
3. Entrust Your Company to Knowledgeable People of Character
Our third law seems obvious yet often the exiting owner is blinded by old ties or quite fears that their son or daughter may not quite lead the business as they once did. This can lead to the owner entrusting key positions to individuals who might have the best interest of the exiting owner in mind but not necessarily that of the owner’s replacement.
[pullquote]It is vital then that key positions, including that of the actual replacement for the exiting owner, be filled with people who are bright, knowledgeable, a good “student,” and one of unquestionable character. [/pullquote]It is vital then that key positions, including that of the actual replacement for the exiting owner, be filled with people who are bright, knowledgeable, a good “student,” and one of unquestionable character. This effort must also be just as strictly followed for the selection of the owner’s son or daughter.
One of the most difficult decisions a parent might make as a business owner is recognizing their son or daughter for the strengths and weaknesses they possess. If the son or daughter simply lacks the needed skills, knowledge, or worse, questionable character, the parent/owner has no business positioning their child in the chair to run the business.
As challenging as this situation might be the parent/owner would be better off dealing honestly and upright with their son or daughter about their decision to hire or promote a non-family member to run the business. The child, or children, might yet work in the company but with clarity of purpose and commitment to being a positive contributor to the future success of the company.
Building value for your exit strategy certainly involves additional components than the three we addressed here. For now however, realize that it is often the people side to the exit strategy that often causes the greatest heartburn or hard feelings. Be clear about your direction, purpose, and set out a clear path for those who will be taking your company forward.
Brad Humphrey, President & Founder, Pinnacle Development Group
