Tag: succession planning

Miller Restoration: 3rd Time’s a Charm

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

 

Built to Sell Radio is a weekly podcast for business owners. Each week, host John Warrillow asks a recently cashed out entrepreneur why they decided to sell, what they did right and what mistakes they made through the process of exiting their business.

As an Exit Planning Advisor, I was excited to discover this podcast based on its topic category alone.

I was thrilled when I listened to an episode to find that John Warrillow is an absolute gem as a host.

My jaw hit the floor when the podcast responded favorably to my request to write a monthly article based on their episodes.

It’s the thing we haven’t been able to give to our readers. That is, the perspective of business owners who have gone through the rigors of exiting a business.

After all, I can talk about Exit Planning until I’m blue in the face.

I can tell you the best practices for Transferring Ownership to Children.

I can even explain Private Equity like I was speaking to a 7 year old.

But when it comes right down to it, you don’t want to hear about this stuff from some hot-shot advisor. Nope. You want to hear it straight from the horse’s mouth.

Let’s do it.

EPISODE 128 (February 16th, 2018)

Episode Summary:

Scott Miller owned Miller Restoration – a company specializing in residential fire and water damage restoration – for 12 years before ultimately selling the $3 million-per-year-company for a 3.5x multiple in 2018.

On two previous occasions, Scott tried – and failed – to come to terms on a deal. The meat-and-potatoes of this episode comes from Scott’s dialogue as he reflects on those failed attempts.

Clip #1:

John Warrillow: “You shared earlier that you had gone through a couple of ‘false starts’ with potential acquirers. At what point did you start to think, ‘Hey, it’s time to sell.’? Was there a triggering event?”

Scott Miller: “There were a couple different phases of that. Earlier on, maybe about 5 years into the business – I listed it. I just didn’t like it anymore. I felt like I needed to do something else with my life. I had a 1 year listing agreement with this person and he didn’t bring one potential buyer.”

“For a few months I was angry that he wasn’t bringing me anyone. But then I thought to myself, ‘You know what? I have a good team, and I’m making a good income… This isn’t so bad.’ Maybe this is just for the best. And I didn’t relist it.”

“I never disengaged during that listing period. That was really important. I had kept growing it during that time and identified the things that I didn’t like to do and delegated and hired so that I didn’t have to do those things.”

Analysis:

 

Do you buy or sell that Scott Miller made a critical mistake when he delegated tasks that he didn’t like doing?

 

SELL.

 

In the last 2 weeks, I’ve heard 3 different business owners reflect on the reasons they began reorganizing the structure of the business, building systems and processes, and delegating tasks. All 3 identified a failed attempt to sell their business as the main reason. Somebody literally told them, ‘Hey, I’m not interested in the business unless you’re coming along with it.’

 

As an Exit Planning Advisor, listening to a business owner talk about delegating and hiring is music to my ears. It is easily one of the top 3 things that all business owners can do to increase business value.

 

In Scott Miller’s case, he didn’t do it because someone told him to, and he didn’t do it to create business value – he did it because he was plain sick of doing certain things every day. In the end, his reason for doing it doesn’t matter. The fact that he began delegating at this point was absolutely instrumental to the eventual sale of the company for a 3.5x multiple. 

 

Continue reading “Miller Restoration: 3rd Time’s a Charm”

How To: Transfer Ownership to Children

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

One of my life’s obsessions is empathy.

For those who don’t know what that is, empathy is the ability to understand and share in the feelings of another.

Put another way: It is the ability to put yourself in someone else’s shoes. To understand what they think, how they feel – and beyond that – why they feel the way that they do.

Empathizing with someone is one of the kindest, purest things you can do for another human being. It takes TIME to empathize. It expresses true care.

 

Beyond that, the practice of empathy helps YOU succeed in life. By empathizing, you instantly become a better communicator.

Practicing Empathy

Example:

Here is how most people give advice:

Friend: “My boss is such a jerk. He treats me like I’m an idiot or something, constantly patronizing me. I don’t know if I can handle working there anymore…”

Advice-Giver: “Yeah, I remember when I had a boss like that. I wouldn’t put up with that if I was you. You need to get out of there. Just move on? You deserve to be treated better than that.”

Friend: “You might be right…”

 

Here is how someone practicing empathy gives advice:

Friend: “My boss is such a jerk. He treats me like I’m an idiot or something, constantly patronizing me. I don’t know if I can handle working there anymore…”

Advice-Giver: “Yikes, that doesn’t sound good. Does he treat everyone like that?”

Friend: “Sort of. I’ve heard other people complain about it too.”

Advice-Giver: “Do you like the other people that you work with?”

Friend: “Yes, I really do. There are a lot of good people there.”

Advice-Giver: “Do you enjoy what you do?”

Friend: “Yeah, I actually love it. And they give me a ton of flexibility with my hours too. I just wish he wouldn’t treat me like that sometimes. It’s so frustrating!”

Advice-Giver: “That would frustrate me too. Definitely a confidence/morale killer for you. How do you respond when he talks down to you?”

Friend: “I don’t know… I guess I usually just not and bite my tongue. Try not to say something smart back to him, you know?”

Advice-Giver: “That’s definitely a good thing to do. It amazes me how some “leaders” can be so out of touch with the abilities of their employees. I had a boss like that once. Only thing I could say is that if you want something to change, you might have to experiment with how you respond to him talking down to you.”

Friend: “What do you mean?”

Advice-Giver: “Well, obviously you know the situation better than I do… But when you just nod and bit your tongue, he might walk away having no idea if you really understand what he said. It might kill you to do it, but you could try vocalizing your understanding, having more positive body language. I mean, don’t be overtly sarcastic about it, but force yourself to be genuinely positive and express your understanding. It might take a while, but eventually he might start treating you differently.”

Friend: “Huh. I never thought about that. I guess I could give it a try.”

 

Who gives better advice?

 

The best communicators are selfless. They take the time to gather more information. They figure out how the other person feels. Then they adapt their own actions/behavior/advice accordingly.

 

Communication is a huge key to the successful transition of a family business. As the current owner of the family business, you are in a great position to extend empathy to any children who are next in line.

 

Transfers to Children

Here are a few tips:

  1. If you want them, tell them. If there is an opportunity for them to “take over”, it is up to you to make it known. “Well they haven’t shown any interest” is a cop-out. Ask yourself why they haven’t shown interest. Talk to your spouse about it. There are likely some obvious reasons. If they aren’t clear to you, they may be clear to your spouse. Above all else, have an open and honest (non-confrontational) conversation with your kid(s). It’s up to you to be the leader that your family and your business needs. If you don’t do it, you will always wonder, “what if?”
  2. Don’t expect them to be you. It happens ALL THE TIME. There is a named successor. Maybe it’s the owner’s daughter. She has a solid role within the family business. Business owner: “I don’t know if this is going to work out. She just doesn’t have the sales skills to drive new business and that is an important part of what I do.” Stop it. Focus on her strengths instead of her one glaring weakness. Figure out if there is a way that you can restructure the business so that sales no longer fall on the owner’s shoulders… i.e. hire a sales team!
  3. Address concerns directly. If there ARE unavoidable concerns with your successor, address them directly. Don’t make backhanded comments hoping to send the message. Don’t embarrass them in front of other employees. And most of all, don’t sit on your concerns “hoping” that something will magically change. If you do, you are setting everyone up for failure.
  4. Don’t forget about non-family employees. Whether you made specific promises to key employees or not, don’t forget about them as you begin making a transition. Allow them to express any concerns, and let them be a part of the solution to those concerns. This will help them feel valued and “in control” as the transition begins to take place. Also, there are many ways to reward key people for their years of loyalty without giving them cash or a stake in the family business.
  5. Don’t get greedy. We see this one a lot too. A business owner will have an outstanding successor lined up, the transition of duties will go extremely smoothly and all-of=-a-sudden the business will experience a growth period. Of course, no formal agreements were made so the owner decides to hand on and reap the rewards a little (or a lot) longer. Make formal agreements and stick to the terms of those agreements, otherwise conflict is inevitable.
  6. Show them how to buy-in. It is entirely possible (likely, in fact) that you cannot afford to “give” the company to your successor. Don’t let this deter you from keeping the business within the family. If time is on your side, there are ways of helping your successor build enough capital to buy you out.
  7. Multiple children. The absolute worst thing you can do is ignore the conversation and keep the future of your estate a mystery to your children. In the face of mystery, most people begin to act very irrationally. Starving for clarity on the situation, they will formulate their own (false) set of facts to try and control the narrative. Depending on their outlook on life, those facts will be heavily slanted for or against them, and fracture within the family will ensue. This can all be avoided if you – the leader of the family – are willing to step up and provide a clear and well-reasoned agenda for how the business will be distributed. You should do it the moment you sense it becoming a concern among your children.

 

Above all, be selfless and practice empathy while exploring the possibility of business transition. For those that are able to do this, the logistics of “who, when and how” become exponentially easier. If you need someone to help you plan out the logistics, give us a call. J

 

As always, give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow Epiphany Law on Facebook and LinkedIn for regular updates from the Firm. Finally, you can follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.

Selling the Family Farm

Legal matters, business strategy, and life perspectives from the mind of a non-attorney.

Farming runs deep in my bloodline.

My ancestors were homesteaders. Farmers by trade. According to the Portage County records, Henry H. Dopp settled in the BOOMING (there were 3 families total) township of Belmont, WI around the year 1852.

Fast forward 166 years and natural selection hasn’t taken its course on the Dopp family.

But it has taken its course on the Dopp Family Farm – at least our portion of it.

My Grandfather still farms a small portion of the original Dopp homestead today. But it’s just a fraction of what ‘Dopp Farms’ was in its hay day.

I grew up less than a mile from that homestead. We drove past those fields every day on our way to and from school. I still drive past it every time I go home to visit.

I sometimes wonder how life would have been different if somebody else had been given the keys to the operation after my great-grandfather stepped out. If some better – more proactive – planning had been done, maybe the operation wouldn’t have failed while my dad was graduating high school.

Would my dad have followed in the family footsteps and become a farmer himself? The answer is likely yes. After all, his lifelong idol – my great-grandfather Russ Dopp – was the very man who had built the operation to one of the largest in the area.

WHAT WOULD I BE DOING?

It took only one generation of mismanagement – no, no. One PERSON making a series of terrible, erratic decisions – to unravel the whole deal.

Boom. That was it. Dopp Farms – for all intents and purposes – was gone.

The rest is history.

Dad went into Ag sales instead of Ag production, and my brothers and I haven’t spent but a handful of days working in the fields.

Amazing how life goes sometimes, isn’t it?

Whether you’re considering an internal transition or a sale to a 3rd party, here are a few tips so your farm doesn’t implode like my family’s did.

Things to consider as you transition your family farm.

Fair does not mean equal.

This is a big one for farms. Inevitably, most farm operations have some children who are an active part of the farm and some who have moved on to “bigger and better” things. How do you split it up ‘fairly’ among all the kids?

I can’t answer that question confidently without having a conversation with you, but I can tell you what not to do:

  • Don’t avoid the conversation. The absolute worst thing you can do is ignore the conversation and keep the future of your estate a mystery to your children. In the face of mystery, most people begin to act very irrationally. Starving for clarity on the situation, they will formulate their own (false) set of facts to try and control the narrative. Depending on their outlook on life, those facts will be heavily slanted for or against them, and fracture within the family will ensue. This can all be avoided if you – the leader of the family – are willing to step up and provide a clear and well-reasoned agenda for how the farm will be distributed. You should do it the moment you sense it becoming a concern among your children.
  • Don’t discount sweat equity. The children who have an active role on the farm have likely contributed to the growth of the business as a whole. In addition to helping you grow the business, they have worked longer hours, taken on a greater amount of risk, and potentially earned less compensation than they would have if they had never come back to the farm. While it is difficult to quantify what this is worth, it is a great mistake to ignore sweat equity entirely. Doing so will likely fracture the business and personal relationship you have with your children who are active in the business.

Finding – and keeping – a Successor.

It is no secret that the farming industry as a whole is having a very difficult time finding and retaining hard-working, trustworthy, talented employees.

Suppose you don’t have any children who are interested in taking over, or perhaps you do, but you know they – alone – won’t be able to manage the whole operation. What do you do?

Once again, I can’t answer that question confidently without having a conversation with you, but here are a few good ideas:

  • Update your employee benefits. You are not allowed to complain about “no good employees” if you aren’t offering the most basic employee benefits. This isn’t 1980 anymore. You need to offer a 401k, a basic healthcare package with dental and vision, and a smattering of PTO days.
  • Offer a clear path to ownership. Handshakes and verbal “promises” of future ownership aren’t going to cut it anymore. It’s your responsibility, as the employer, to offer a written plan that leads to ownership for your successor. Tell them what they need to get better at. Tell them how much money they need to save. Offer them a creative incentive program that helps them accumulate wealth.
  • Contact a reputable “Ag” University. If all of your ducks are in a row and you still can’t find a successor, it might be time to start working with a reputable University to start getting talented young people in the door. Contrary to what you may have heard, there are still several thousand students pursuing ag-related degrees this year. UW-River Falls and UW-Madison produce the most. You can coordinate with their department coordinators to offer internships, schedule interviews, and promote post-graduate positions.

Growing the value of your business.

Understand something: As a farm owner, you can choose to think about the value of your business in one of two contexts.

  1. The value of the assets your business has accumulated.
  2. The value of the ongoing income your business generates.

By thinking along the lines of #1, you are not transferring a business upon your exit. Rather, you are selling assets. There is certainly nothing wrong with that, as your assets likely have a substantial amount of value…

However, by thinking along the lines of #2, you have much greater upside. If you are selling a business – a business that will continue producing income even in your absence – you have the opportunity to demand a premium on top of the Fair Market Value of your assets.

Whether you are seeking an internal transition or external sale, you likely want to drive the value of your farm business upwards in the years leading up to your exit.

Here are some things that can help you drive the value of your farm business upwards:

  • Strong brand reputation.
  • Valuable land base – difficult to replicate.
  • Cross-training among management. Owner has delegated the majority of day-to-day tasks.
  • Strong culture.
  • Dependable management team.
  • Customer base and/or special contracts that bring the business higher margins.
  • Intellectual property (patents / unique processes).
  • Highly efficient day-to-day operations.

 

Give us a call or shoot me an email if you have more specific questions!

Thanks for reading! To subscribe to our weekly content, you can enter your email on our homepage. You can also follow Epiphany Law on Facebook and LinkedIn for regular updates from the Firm. Finally, you can follow me on Instagram (@kelton.official), where I regularly post links to new blogs, as well as random pictures of my life.