Why succession planning is crucial for every business: Insights from local leaders

ONTARIO — A business owner not planning for the future can have effects far beyond the company’s walls.

“The earlier you start planning, the better the outcome for you and your business,” said Mark Dorman, president of Succession Plus. “Only 20% of businesses ever transition, a lot of them shut down or die with the owner when people aren’t prepared.

“You have to think about that ripple effect, too — your family, your employees, the school systems and Little League teams that depend on your support. You owe it to the community to try to make the most of your life’s work.”

Dorman was one of the panelists at Wednesday’s Business Owners Sharing Solutions (BOSS) breakfast at the Ontario Event Center.

The Richland Area Chamber organized the event to share ideas on smooth ownership transitions and employee development. Panelists included Dorman, Gorman-Rupp president and CEO Scott King, Alumni Roofing owner Kristine Lindeman and Penwell Funeral Home owner Jake Penwell.

Carl Fernyak, Richland Source founder and owner/ CEO of Carrousel Properties, LLC moderated the discussion.

The former CEO of MT Business Technologies, Fernyak was the third generation family member to lead the company and sold ownership to Global Imaging Systems, which kept the existing management team and associates.

“I think the elephant in the room in succession planning is often if you don’t have anyone ready to take over the business, what then?” Fernyak said. 

“The question becomes ‘Who do you talk with about the next steps”‘ For me, it was the accountants and attorneys, but also the senior management team and anyone internal who would be handling the transition paperwork.

“You don’t want anyone to be cleaning up a mess later, so bring those people into the process as early as possible.”

What should I do if I’m a sole proprietor?

Dorman emphasized the importance of a professional transition team, especially if a business only has one owner.

“A professional business exit planner’s role is to be the quarterback and get everyone involved knowing what they need to know,” he said.

Dorman said firms like Succession Plus are able to study a business’ strategic goals, discuss an owner’s options for succession planning and help coordinate efforts with accountants, lawyers and future owners.

“Our data indicates this kind of planning can help  increase a company’s value by 30 to 40%,” he said. “It’s important to know where your business stands, because it is going to be a buyer’s market for selling your business.”

Penwell, who purchased the Turner Funeral Home from Bob and Catherine Turner in 2018, noted that not all entrepreneurs want to sell their business for the highest price tag.

“I did not buy from people who were like that,” he said. “I paid a fair market price, but the Turners wanted to make sure their business was cared for long into the future. 

“I started working there when I was 14, and they were very forthcoming with me about wanting me to own the funeral home someday.”

Kristine Lindeman, owner of Alumni Roofing Co with her husband Todd, said the two of them are also an example of a good succession plan.

“Tim Banks, the founder, is still our vice president of operations, so we have a bit of a safety net,” Lindeman said.

“Before we took ownership, we were able to go to those bank meetings and Todd obviously interacted with the employees at multiple different levels, so I think that helped build trust among the team.”

Who should be involved in succession planning?

Lindeman said she and Todd were excited about the business’ potential for growth and where they could take Alumni Roofing as owners.

“You want to involve your employees in an ownership change at some point,” Lindeman said. “Even if you’ve worked at the company, it’s a different trust level when you’re the owner.

“Be as transparent as you can be about what will change.”

Fernyak said talking to a competitor might be useful when a business owner is thinking about retiring.

“If you’re running a small organization and you’re acquainted with someone who’s kind of in the same boat, it could be an interesting meeting,” he said.

“You can ask if something happens to me, would you want to take over running my company or vice versa? You could get a collaboration deal or maybe the start of a succession plan from that.”

Employee leadership development 

King said the Gorman-Rupp Company’s leadership team requires department leads and human resources to review an employee’s skills and performance annually.

“We try to have a succession plan within our departments and all of the important positions,” he said. “You also can have employees that are great workers and not ready for advancement, which is fine — those people are often the backbone of your workforce.

“Once you’ve identified employees who are ready for advancement though, talk with them about if they’re interested, and share what skills or experiences they need to get in order to get there.”

‘You want to be at peace with your decision’

Dorman highlighted the importance of being financially and emotionally ready to sell your business in succession planning.

“That might not come naturally and it won’t come overnight,” he said. “We had a client who was very successful financially, but didn’t know what he wanted to do personally after that happened, so he wasn’t emotionally prepared.

“You want to be at peace with your decision.”

Penwell echoed Dorman’s sentiment.

“What I don’t want to do is to be far down the line with no succession plan, where we get so frustrated and think ‘I want this out of my hands today,’” he said. “I don’t want to get to the point where I’m happy working and then the next day be done with it and have no plan.”

Dorman also encouraged owners to get a business valuation every two to three years.

“It doesn’t have to be a formal valuation each time, but what you want to avoid is underselling your business or thinking it’s worth more than it really is,” Dorman said. “Nine out of ten small business owners don’t know what their value is, and that’s their life’s work.”