Experts say best succession plans prepared in advance,
not out of last-minute necessity or tragedy
Mylese Tucker never considered having a succession plan for her business, Nature's Cupboard, until she served on the board of the Independent Natural Foods Retailer Association. One of the group’s first strategic goals was to implement a succession plan.
“We hired consultants to help, so I was able to get professional insight that my little business could not have afforded,” said Tucker, whose company has locations in Michigan City and Chesterton. “What I learned may sound simple, but it is something I never took the time to do.”
She began observing those individuals in her organization who had the desire and talent to move forward. Efforts were then made to search for developmental courses and key opportunities to nurture those team members, and to help them grow their skill set.
“I learned that I needed to have certain things in place that I had previously thought were only for big companies,” Tucker said. “No matter how small, a business needs to have a vision statement, a mission statement, core values, strategic goals and a map to help meet those goals.”
Nature’s Cupboard’s succession planning is still a work in progress. But Tucker now purposely is focusing on where she wants her business to be in 10 to 15 years while bringing a newfound cohesiveness to her team.
She said developing leaders has been fun and adds a sense of excitement for those “who are in the pipeline to take over.”
“Until then, I figured I would just drop dead in my store’s aisle and somebody in my family would have to take over,” she said, only half-jokingly.
Business succession planning too often takes place after dire circumstances. Owners are unwilling to look past the present into the future, or the best of plans or intentions get ignored until the last minute—or, worse yet, never prepared at all.
“Most large corporations have built into place a plan for leadership and business succession. It’s the small entity—the closely held LLC or small business corporation—which is at risk,” said George Carberry, managing partner at Burke Costanza & Carberry LLP, attorneys at law in Valparaiso. “This is often because the business owner—whose work ethic and talent built the company, and who became successful by thinking a jump or two ahead of his competition—is often myopic when it comes to the reality of his death, incapacity or retirement.”
Carberry said that, over the years, some of the most prominent business owners in Northwest Indiana chose to sell their businesses to third parties or competitors despite having qualified heirs who could have stepped into the business.
“This realization is that the heirs would do better in the long run with family wealth than with the headaches of running the family business,” he said.
There are essential strategies to consider before installing a smart, profitable and enduring business succession plan. And if you plan, it cuts down on unneeded expenses toward attorneys, advisers and CPA firms.
“My most important recommendation is to start succession planning early,” said Terry Larson, of Larson-Danielson Construction Co. Inc., a multi-generational business in LaPorte. “Development of a good plan takes a great deal of time and thought.”
Larson said businesses should leave at least five years to develop a succession plan.
“For many small businesses, this is particularly appropriate since succession planning involves both the future transition of leadership and ownership,” Larson said.
Training and development are important to giving employees the opportunity for consideration toward key roles in your organization.
“The goal is to get the right people the training and experience, so they have the necessary skill set, knowledge and mindset to fill the right jobs at the right time,” Larson said.
Making a plan
There are key steps to remember in this process. They include assembling the right team to pull it off; an attorney experienced in both business matters and estate planning; the accountant familiar with the business; a business valuation professional; and a financial adviser familiar with the family’s history, players and investment strategies.
“Consider the business marketplace, current and likely future competition, business trends, capital needs and possible product obsolescence,” Carberry said.
Also consider the alternatives available to the business owner: sale or gift to children; sale to employees; sale to a third party; liquidation and dissolution. The business owner should discern, with help from the team, what’s most important. Family succession? Obtaining the highest and best price and terms in a sale?
Choose a successor or successors by searching your firm for the right type of leadership, talents and future career goals. For family-operated companies, an independent consultant might come in handy to remain unbiased and fair.
Next, create a training program to begin grooming the possible successor. Teach him or her everything they will need to know from the ground up, without cutting corners or giving them special privileges. Such enticing perks will not help them when they’re potentially at the top of your organization.
Put a theoretical pin on a calendar in the future to determine the specifics of the shift in power. This deadline will allow your successor to understand what will be needed and expected—and just as importantly, when their role will change along the way.
While these steps are in action, the current owner or principle should begin planning for his or her retirement, even if the idea sounds implausible at this early stage. Also, consideration of the financial aspects of the plan should be outlined. Will there be a buy-sell agreement? Which assets will be transferred? Will private annuities be a part of the final agreement? These are crucial questions that should be addressed beforehand.
Finally, when the time is right and all steps have been checked or completed, the plan can be executed. Some plans can be installed at a certain time, with all parties on board simultaneously. Other plans can be phased in to make the transition easier.
Following the plan
“There are obviously a multitude of variables that go into a successful perpetuation, but one of the most simple and important elements is a written plan,” said Craig Menne, president of General Insurance Services Inc. in La Porte.
Menne took over for past president Tom Cipares a few years ago, transitioning the firm into its third generation of ownership.
“Over the years we’ve discussed, debated and tweaked our buy-sell agreement, but it serves as the foundation for moving the organization from one generation to the next,” Menne said. “Ultimately, it provides for a clear set of expectations so that everyone can plan for an orderly transition of ownership.”
Naturally, this type of plan also helps to grow the firm during its transition so there is sufficient capital to possibly buy out the retiring partners.
“We’ve been working very, very hard to make that happen,” Menne said. “We’ve done a couple of small acquisitions, and we’ve also hit our organic growth targets. A lot of that responsibility falls on the next generation, so there definitely needs to be a talented bench in the organization.”
With all that said, a proper plan that’s well executed doesn’t need to be a “major ordeal,” Menne said. In fact, it’s been exciting for the company because it has allowed a new group of leaders to make a mark on the company, as well as the communities that it serves, he said.
“I know it’s been equally rewarding for the prior generations to see that we’re working hard to honor and build on what they started years ago,” Menne said. “It’s truly rewarding for all of us.”
Keeping it in the family
As business succession plans go, it is highly unusual for the transition in leadership to go from father-son, father-son, father-son, especially in the funeral business. Yet this is exactly what happened with Geisen Funeral Homes, in Crown Point, now in its fifth generation of ownership.
“How rare to have one of your children share the calling to become a funeral director and funeral home owner for so many generations,” said Jean Lahm, the firm’s community relations manager. “Typically, there is a cousin or uncle or nephew who takes over the business when it's not the calling of the owner's children, and obviously not all owners have children.”
In 1867, thriving furniture business owner Peter Geisen began making and selling coffins in his furniture store. This was a popular thing for furniture store owners to do during the era when funeral services became more formal. This commercial demand for caskets prompted the Geisen family to open “Geisen Furniture & Undertaking” in downtown Crown Point.
Peter’s son Charles joined his father in the business, with both becoming some of the first licensed embalmers in the state of Indiana. In 1933, Charles’ son Ralph joined his father at the family’s funeral home, followed later by another son Norbert. Ralph continued to run the business for the next 25 years.
Ralph’s son Robert, and his wife, Marilyn, owned and operated the oldest funeral home in Northwest Indiana under the same family name. Robert retired in 1996, and his son Larry became the fifth-generation owner.
“Larry’s father didn't pressure him to be in the business,” Lahm said. “He wanted him to be sure and to explore other options before any decision about his future in the funeral business.”
The family’s succession plan involved making sure each successor was 100 percent sure of his intention to someday replace his father. For Larry Geisen, this meant first attending college for four years to explore other career options, and for his son Anthony the same criteria held true as the firm expanded to four locations.
“Like his father, Anthony earn a bachelor's degree in business from Purdue University,” Lahm said. “And like his father, Anthony decided the funeral business was his calling, and he also earned a degree from Worsham College of Mortuary Science.”
In contrast to most other businesses facing this issue, Larry and Anthony Geisen weren't “tabbed” to be the successor. A strict timetable wasn't established. A formal plan wasn't written. This is one of the benefits of a family-owned firm.
“They worked all of the various jobs a funeral home requires, from cleaning windows to leading a funeral procession, learning the spectrum of funeral care,” Lahm said. “So they'd been in the business quite a few years before making their official decision to make a career out of it.”
Consider all variables
Carberry typically tells clients to keep in mind the difference between personal feelings and business necessities, which can blur or obliterate even the best succession plan.
“You need to be flexible,” he said. “A lot can happen between the creation of a succession plan and its execution.”
Other tips to remember: improve earnings by eliminating unnecessary costs; don’t micromanage every part of your plan; and consider bringing in a CPA firm or attorney for updated insights into the latest state and federal regulations, as well as ever-changing tax rules.
Never rule out the worst-case scenario—the unexpected death of the owner— and how the company will survive and if any contingency plans are in place.
“A successful succession plan needs to address the transition of people out of their roles, in addition to the transition of the people into the same roles that will replace them,” Larson said. “The plan should not be just for continuation of the business but to position it for future growth as well.
“The plan should be dynamic in the sense that it will need to be adjusted as the organization changes, continues to evolve and adapt to their business environment.”
For Mylese Tucker at Nature's Cupboard, which was launched by her mother, LaVora Tucker, in 1980, the ongoing plan is to locate and retain just the right successor.
“It’s a brand-new work in progress for us, and nobody has been named as an actual successor yet,” Tucker said.
Still, unlike too many other firms, Nature’s Cupboard no longer has an empty cupboard when it comes to its future leadership.