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Succession Planning: What's Next?

Make transition to next generation as seamless as possible

In the next decade, the distribution industry will come upon a huge generational shift. So why haven’t many owner-managers planned for this change?

Rick Rogers’ father served as a salesman for fluid power distributor BW Rogers Co, Akron, OH, until founder Bruce W. Rogers died abruptly in 1971. Rick’s father was thrust into the top spot, with no management training and no previous view into the company’s financials.

“My grandfather kept the cards close to his chest,” Rogers says. “He left no information regarding his desires for the company or the financial condition of the business.”

It took Rick’s father many years to catch up. He learned from that experience, knowing Rick would eventually take over the nearly 80-year-old company. “He wanted to make sure he laid the groundwork for a seamless transition,” Rick says.

Among other things, he had Rick work many different jobs in the company. Rick also started working with his father in the five years leading to his retirement. As a result of deliberate preparation, the company went through no operational or financial stress when, in 1998, Rick took over as CEO.

Seamless Transitions

Succession planning is about preparing for the inevitable departure of the owners and managers of your distributorship, and having all the right pieces in place when that happens. “Think about what is going to be when you’re not there anymore,” says Brent Grover, president of Evergreen Consulting.

As USESI Founder Richard Worthy pointed out in a recent interview with MDM, the next five to seven years will see quite a few owners in their 70s and 80s, many of whom will sell the business for estate reasons. But even if you’re not in your 70s or 80s, it is still critical to plan for the unforeseeable such as illness or death that could leave the business on unstable ground. In addition, plan for what happens when you or other principals retire.

“The earlier you can start the process, the better,” Rogers says.

Along with ensuring a clear roadmap after you leave, put a strategic plan in motion now that involves key managers in making decisions that affect the company in the near- and long-term.

Succession planning is about making a transition as seamless as possible for the next generation of owners and managers. “A company without a good succession plan could not only not have the management to preserve the continuity of the business, but won’t have the money to do it,” Grover says.

Barriers to Planning

Why haven’t many distributors moved forward with succession planning? Sometimes owner-managers just don’t know what is out there, or they can’t make up their minds as to what they want. Keep the company or sell it? Are the children smart enough to run the business, and do they want to? Should they sell the company to employees, even if employees can’t afford to pay as much as outside buyers?

Grover says owner-managers also sometimes have not invested in a succession plan or in building up a strong management infrastructure because they may have a feeling of immortality or invincibility, with the idea that no one else could do as good a job as they have.

On the other hand, some owner-managers just may not know where to start or what is available. They may not know that there are ways to minimize transfer taxes, or that there are ways to give non-owner executives a stake in the business so they won’t be easily recruited away by competitors or start their own companies. Rogers has offered some of his top executives phantom stock plans to give them a stake in the future of BW Rogers, for example, which provides Rogers the option that one of them could take over the company when he retires.

Accountants and lawyers often will not bring the subject of succession planning up – though some will. Rogers recommends hiring a consultant who specializes in succession planning; accountants and lawyers should be used as well, but not exclusively.

To receive a free three-month trial subscription to MDM, email Tom Gale.

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