Future-proof Your Business: Strategic Succession Planning - PODCAST TRANSCRIPT

Editor's note: The following is the transcript of a live interview with , Rich Carroll or Carroll Consulting, Jeff Suess of Raincoat Roofing and  Brittany Wimbish or Fields Roof Service. You can read the interview below, listen to the podcast or watch the recording.

Intro: And good morning. Welcome to Coffee Conversations. My name is Heidi Ellsworth and we are here today to talk about succession planning. This is a topic that is on everyone's mind and that we need to be talking about more and more. So we have brought experts who have not only been through it, but are coaching and helping others through this understanding succession planning.

But first, a couple of housekeeping. This is being recorded and it will be available within the next 24 hours. Be sure to share this out with your other business professionals, your friends, family. This is the kind of information, it's not just about roofing, this is about any business owner and their succession planning.

Also, the chat is open, so please let us know where you're calling from or where you're Zooming in from, your name, your company, what kind of company you have. We want to hear all about it. And please, throughout this conversation, you are a big part of it. So please ask questions, make comments and let's have a great conversation today all about succession planning.

I want to thank Carroll Consulting as our sponsor for today's Coffee Conversation. Talk about expert and really being able to help understand not only succession planning, but every part of growth of your business and what you may need. So we appreciate them for sponsoring this and of course, we have Mr.

Rich Carroll with us here today, so let's get some introductions going for this conversation.

Rich, welcome to Coffee Conversations. Thank you so much for being here today.

Rich Carroll: Thanks for having me, Heidi. Looking forward to today. I think it's an important conversation.

Heidi J. Ellsworth: It is such an important conversation. So let's start with an induction. If you could introduce yourself, tell us about your business and also your history in roofing.

Rich Carroll: I've been involved in roofing since 1984, so this makes it my 40th year. I've been involved from the very beginning as an apprentice, worked my way up through the field, then back into the office and eventually became an owner. I've also worked for other businesses as a consultant to help them grow their business. A few years ago, I decided to retire. My peer group pulled me back in and asked for some help. So I've been helping some of my peer group members, so that's where Carroll Consulting Group started.

Heidi J. Ellsworth: That is excellent. Again, thank you so much for bringing this topic to everyone out there. It is so important.

And we also have with us today Brittany Wimbish. Brittany, welcome to the show.

Brittany Wimbish: Good morning. Hi.

Heidi J. Ellsworth: Brittany, so excited to have you here. Can you introduce yourself and tell us about your company and what you do?

Brittany Wimbish: Yeah, sorry, I'm getting over a cold. Those first weeks of school have come and infiltrated our home.

I work for Fields Roof Service. We've been around since 1957. I've been there for about 15 years. I started front-office support work and worked my way up. We're in the midst of our transfer for succession, and when it fully comes over onto my side, I'll be the fourth generation.

Heidi J. Ellsworth: That is great. Thank you so much for being here today. That is great.

And I am also really excited to introduce and welcome Jeff Suess to these Coffee Conversations. I've worked with your company a lot, Jeff and we are just thrilled to have you today. Thank you so much.

Jeff Suess: Well, thank you for having me. Again, my name is Jeff Suess. I am the president of Raincoat Roofing in Chicago. I got into the business in 1980, had the opportunity to work for two other roofing companies prior to approaching. At that time, Rich Marubio, who was the owner of Raincoat, which was started in 1981 and I said, "I'd like to buy your business, but I have no money." But I said, "I have an idea."

So we started a maintenance entity, which back then, wasn't really... Service was not as common and talked about as it is today. And so in '97, I started becoming an owner of Raincoat Roofing and now it's all mine. So it's been a very, very good journey that's just not quite over yet.

Heidi J. Ellsworth: That is great. Thank you. I'm so excited to hear more of your story and also just the experiences. I mean, there's been so much that has gone on in the industry. It's crazy.

And I am very happy to also welcome Andy Anderson. Andy, thank you so much for joining us today. Please introduce yourself and share information about your company.

Andy Anderson: Yeah, good morning. Now my company is consulting with operational companies, both in the construction industry and non-construction industry. My background is a CPA, but please don't hold that against me. It's not about black and white, it's not about numbers. I've been through a number of transitions, both things that went well and things that did not go well. You learn more from what didn't go well in transitions of businesses.

I was very fortunate to be involved in a roofing company in Portland, Oregon and was part of a team that created opportunities where we grew the business from about $40 million a year up to $100 million a year.

Heidi J. Ellsworth: Wow!

Andy Anderson: And developing personnel, financial stability and a future for the employees of the company. So some very good experience. There's a lot that these kind of transitions cover.

Heidi J. Ellsworth: Yeah, yeah. So much information. So what we want to do is really start out with everyone's stories. There's nothing better than understanding what people have been through.

So Brittany, I'm going to start with you, just on what's this journey been, fourth generation, what's this journey been for succession for you?

Brittany Wimbish: A lot of hills and valleys. I think especially coming from a family-owned company, you see all the benefits, but again, working for a family-owned business, there's times where you're like, "Why do I do this?" When I go home, I'm still dealing with the same people, but it's a conversation that I've had slowly building over the last five years or so and talking with my father and his partner, with leaders in our company, what it would look like if I became a part of that leadership, talking about it with my husband. How does that work-life balance that kind of doesn't exist, that teeter-tottering effect?

There's a lot of things to consider.

And I think the most interesting thing is it's pick your own adventure, especially with us as a family, like them, they've had an experience of going through that succession before [inaudible 00:07:32] owners and now they're forced to be on the other side and decide what they want their retirement to look like. How do they want to be paid out? Do you want to be a part of a board of directors? Do you want a clean cut? Do you want to be phased out?

There's a lot of questions that you have to ask each other, and then when you have a partnership, making sure that partnership agrees on how that exit will be.

Heidi J. Ellsworth: Yeah, so much to consider and so many people in the family.

Brittany Wimbish: Right.

Heidi J. Ellsworth: So we're going to come back to that too, but Jeff, I'd love it if you could share, you shared a little bit during your induction, but that bigger story of how this is looking for you on succession.

Jeff Suess: Well, that's an interesting question, Heidi, because when Rich asked me to become part of this conversation, I said, "Well, Rich, I'm really the wrong guy to be talking about this because I haven't figured it out yet."

And so I thought I had it figured out. We also are a family business, and my forever thought would be that it would be my son. I think it was about seven years ago, my son-in-Law joined our company. And so, okay, there you go. That's, again, a family business. And then I had always wanted to include our sales manager who's been with us for 25 years. There's sales, there's production, those two are covered and then there's everything else. And so I thought I had this perfect triangle.

My son-in-law left the business to pursue another opportunity and it was very amicable, him leaving. But that, in my mind, left a little bit of a hole in that triangle. So now I'm having to pick up the pieces and try to finalize something with my son and the sales manager.

So it's a journey, but if I'm being 100% honest, I'm a little afraid and a little afraid being that what am I going to do with myself? Yeah, you travel a little bit, you do a little of this, but I have many friends who have retired. I'm 70 years old, and it seems like there's a lot of grandkid babysitting going on and I don't think that's what they saw in their future.

So I'm sitting on the fence but slowly realizing that I need to move forward with this, so maybe I'm going to learn something today, not teach anything.

Heidi J. Ellsworth: I have tell you, Jeff, I'm with you and I'm a little scared of all of that, especially when you love what you do so much. It's a big change.

Rich, you've done this a couple times now. Would love for you to share some of your succession stories.

Rich Carroll: Well, I have quite a few, but I want to talk about two in particular. One of them, I was brought in to become an owner of a company. We had an agreement. I thought I did my due diligence, walked into the company, was prepared to take over the company and then quickly realized that no one in the company knew anything about the transaction that had occurred, and there was some family members involved.

So instead of walking away from that situation, I decided to stay and try to fix it and it just got progressively worse. There was no plan in place. The owner didn't want to be transparent with the employees, so it was very difficult. So I quickly realized, with my future ventures, that I was not going to run things that way.

So I had another business that I own that I was not particularly interested in running. I actually ended up helping somebody out and ended up taking over the business. But I brought somebody in and we had a five-year plan, and we had a great succession plan in place and how it was going to happen. And even though it went probably closer to six years before I finally walked away, I'm happy to say we kept all our employees, the growth of the business kept going and to this day, the business is still very successful.
So there's two ends of the spectrum on how to do it properly and not do it properly.

Heidi J. Ellsworth: Yeah. Wow, yeah, very much.

And Andy, it sounds like you've been obviously with the firm in Portland and been involved in some succession. What are some of your stories?

Andy Anderson: Well, I have a number of them and like I said earlier, you do learn a lot more from the ones that didn't go well, but I have one long-term client of mine that I've worked with a number of years. It's a fourth-generation company, similar to what Brittany's going through right now.

At the point that I got involved with the transition from the generation two to generation three, the gentleman that owned the company was a son who he inherited the business from, had run it for a number of years, kind of fiddled along, but it made enough to make a living, decided he was going to either sell the business or close it. His daughter had some interest in buying the business from him and then putting her own stamp on it. He would refuse to sell it to her, said that a female should not be in that industry.

So she ended up hiring somebody to buy it for her on her behalf. Made that happen. There was no planning, there was no transition. When her father found out about it, he wouldn't talk to her for two years. So there was no transition, but she jumped in because she had the desire. She didn't necessarily have the industry experience. She jumped in and engaged the employees and had the desire to learn and really made that company into a nationally, internationally renowned company or awarded company.

Now, following that along, she had a son or has a son and she decided in the early 2000s, after having employed him for a couple years, her personal situation was that her husband was diagnosed with a terminal illness, so she wanted to rid herself of running that company. So she told her son that he was buying the business, so he was put in a situation where he stepped in and bought the business. We did a quick planning process, created a board to help counsel him and give him some business experience around him. He was well-capitalized, she made sure of that. The transition went through.

Totally two different situations, same company. And she was very much a success even though she didn't have any planning because she had the desire. He had all the planning and that stuff, but didn't necessarily have the desire, but has still been successful.

Heidi J. Ellsworth: Wow, interesting. So many different scenarios. So as we're looking at this, Rich and we're really thinking about, let's talk amongst us all about where to start, when to start. You mentioned that before and Andy just touched on that.

When do you start really having those conversations and starting to prepare for succession?

Rich Carroll: Well, the easy answer is as soon as possible. I typically hear about succession planning when people start talking about retirement, and I think that's far too late. If you can start your succession planning 20, 25 years and start the plan, you might not know who's going to be the leadership in 25 years.

One of the big things that I see is the financial side of it. So if you start your exit program 20 years, 25 years in advance, you can make sure that the money is there for you to leave and you're not passing that burden on to your family if it's a family-owned business. But regardless of how soon you start, there's a lot of things that are involved with how do you go about doing it after that?

The big thing that I see is that most people don't have a plan. So it typically takes anywhere from, I say five to seven years, some people say four to six years. I've seen it done quicker if a company is strong and the processes and procedure's in place and they have the right people.

So I recommend you start as soon as possible, put a plan together, make sure you don't keep it on the top shelf, bring it down, review it as much as possible and you're going to be much more successful the earlier you can start this process.

Heidi J. Ellsworth: Brittany, I saw you nodding, especially at the 20, 25-year. I was like, "Whoa." Yeah.

Brittany Wimbish: Yeah. One of the things that I'm learning as going through this is it is something I need to think about, because you don't know what the next 5, 10, 15, 20 years looks like, once this transition happens, what's my transition? What's that family balance for me as a family-owned company? Who is the leadership either within my company or how do I need to set up those next years, those next handful of buckets for someone to come in and want to purchase me? So there's those two avenues that I'm constantly thinking about as this is going on because my company is aware that this is happening and the leadership is backing me, but this is just the first step because what's the second step when it's time for me to move on and what does that look like and what will the company look like? How diversified will we be?

And one of the important things I know we've talked about before, Andy being a CPA is a big plus because a lot of people within a family-owned business don't get a look at the books every day. So learning the financial side of the company, roofing is one side, but running the business is another side. I don't spend my day out on roofs and looking at things, but I spend a lot of time looking at our accounting and looking at our system and looking at backlog and analyzing things from the number side.

And so I think it's important if you're going to be looking at someone internally, who are you going to, for lack of better term, groom up and share that information with so they can start to get those nuggets and have those open conversations about where the company is going?

Heidi J. Ellsworth: Yeah, that makes so much sense. And not every family is going to have that next generation who actually wants to be involved, so planning for so many things.

Jeff, I know we've talked a little bit earlier about that and your planning and there's this when do you start and then to Brittany's point, is it something you pass on to your family? With all the mergers and acquisitions that are going on out there, do you prepare for that? What's some of your thoughts around that?

Jeff Suess: Well, that's where it gets a little confusing because there are several opportunities available today. You could be merged or bought by another roofing company. You could do the private equity and talk to those folks, and then you would stay in management for a limited amount of time for however you agree. But I'm finding out that that plan, you make it the way you want it and if that equity company or the people who want to buy you, if they don't like it, well, get in line. There's another 10 people that could be interested.

So there are a lot of avenues, I think, to be able to sell. But I'm fortunate, as I said earlier, my son had always been my exit plan, but with my son-in-law then joining, I thought it was just the perfect recipe and now I'm having to put that back together. But I guess my point with all that being said is I think there's many, many other opportunities and I think I'm getting tangled up in the minutiae of it all, but I'll figure it out.

Heidi J. Ellsworth: I'm with you, I'm with you. Like, how does this work? I mean, even though I'm not a roofing company, we're a small company and what's the next steps? And there's a lot that goes into that.

And Andy, as you're looking at it, not only from helping companies go through it, but also from that financial side, just like Brittany said, how soon do you recommend people start planning and thinking about putting that succession plan together, especially from the financial side?

Andy Anderson: Well, I agree with Rich. It's you can't do it too soon. The majority of the time what happens when people decide to retire, it's within two or three years of, "Okay, I want to retire by this day." In order for that to happen or happen well, it really all centers around operations and if operations are going well and if operations are profitable, if you have leadership teams within your operations where it continues on, it makes the succession planning that much easier. It makes the market for, as Jeff said, the market for your company, whether you sell it to the next generation or you sell it to an outside party, it makes that process along with it.

So it's not just about, okay, it's putting together a plan, it's being able to have something to put into a plan as well.

Heidi J. Ellsworth: Yeah, as you're going through that. Rich?

Rich Carroll: Yeah. One of the things that the earlier you plan, there's always the proverbial bus. If the owner or operator for some reason is exiting the company unexpectedly, if you start this plan sooner and you're transparent about that, everybody knows what your wishes are, so that helps with a catastrophe if it does happen.

So making sure that you have a plan in place and that you're following and you're discussing it all the time is so important.

Heidi J. Ellsworth: What are some of the pitfalls, to that point, that you've seen, Rich, with companies that do not have a plan, that either have that unexpected exit or just one day, "I'm done. I want to retire next week"?

Rich Carroll: Well, the obvious one is leadership. There's a leadership gap. Who's going to fill those? Nobody knows. Do you have a loss of knowledge and expertise if you have no plan and somebody exits on you? There's employee uncertainty. What's going to happen now that we lost our leader? Are we going to find other jobs? There's internal power struggles. Who's now going to take over that position, especially if there's multiple family members or longterm employees? How about your client and vendor concerns, your customers? They're thinking, "Who am I going to deal with?" Because probably your top customers have been dealing with the owner-operator for years.

And it's also a disruption of longterm strategy. All of a sudden, your strategic plan that you have in place comes to a stop and everybody's regrouping. So not having a plan and something happens, it could be catastrophic and in some cases, it is.

Heidi J. Ellsworth: Brittany, I mean, I just know from talking to you over the years, this has been in discussions for a long time for you.

Brittany Wimbish: Yeah, it has.

Heidi J. Ellsworth: Talk about that.

Brittany Wimbish: It's been an up-and-down conversation because I think there's a lot of emotions that go from when you're dealing with owners that this has been their job, this may have been their first job and they've just worked in this company and then bought in and moved up and now they're owners. There's a security f actor to that and then going into the unknown and having to choose how to be bought out, how to transition out the security of the employees that have been 20-year friends.

Our senior project manager works for us 25, 30 years and so he basically has known me my entire life and him having a lot of conversations about him being okay with me being in charge. He doesn't have the interest to necessarily take over the financial responsibility, but it is very important to him and the families that we employ from both sides, from my father and his partner to our PM to some of our leads that have been here for 20 years, that we continue to take care of their families and continue to now put their kids through college or have them come on board. There's plenty of instances where now I've got sons and daughters coming into the office or into the field, into the warehouse now and following my footsteps to a certain degree and wanting to learn more in different aspects for a summer job or transitioning into after-high-school schooling or whatever.

But it is an emotional thing, and if you are not thinking about it and not talking about it earlier enough, I think it doesn't just make the person that's in charge a little ambivalent, it creates those waves downstream, for sure.

Heidi J. Ellsworth: Yeah. And so Jeff, you said you guys are still working through this. How have you been working? How long has it been since you started this plan? I know you started it and it got a little upset with some changes. What are you looking at from a timeline?

Jeff Suess: Well, that's an interesting question in that I've often thought that, "Well, just start working two days less, three days less, four days less a week," and then at that point, then you haven't really pulled the plug, so to speak and your percentage of ownership as they, my son and the sales manager, Matt, would finish buying me out and then it's a slower process. It's not an immediate cut-the-cord type of a thing.

And Chicago has a long line of family roofing companies. I mean, like Brittany's company, third, fourth generation. So I've seen a number of great, great, old-line roofing companies in Chicago. That's the way that they have transitioned. You would still see the founder, the second-generation guy at the Chicago Roofing Contractor Association meetings and talk to them, but they're not really active to the same extent that they were when the company was thriving. So they're just riding off into the sunset slowly, but still able to go to the office and create a little bit of hell and then leave.

So I don't know, maybe I see that as an avenue to pursue and I know that my son is on board with that, so I'm thinking that's the direction that may be leading, but I haven't decided.

Brittany Wimbish: I just wanted to add one thing. Talking about your son, I think there's a lot of ambivalence when you're having an employee child step up and try to fill those shoes because they're been a lot of conversations like, "I'm not my father, but I would like to be him in so many ways and not at all in other ways." And you have a lot of those conversations where you're... Do you bring on a partner or do you not bring on a partner?

You've talked about that trifecta effect where you can fill some holes. I've voted against that. I don't want to operate that way. I just want to build a team, a strong team around me that can take those leaderships and that initiative and me support them as the owner, but it be their company in face value and support them financially and decision-maker-wise because this has been a part of their lives for so long and they know how things should run and there's a lot of pride in their work, whether they're fields installers or if it's an office employee, all of those people have a lot of pride and want that anonymity to continue to make those decisions and represent your company well.

Heidi J. Ellsworth: That's so true. And Andy, I see you nodding. What's your thoughts on that?

Andy Anderson: Well, Brittany brings out a lot of issues that she's obviously going through that companies go through and one of the biggest thing is who do you bring into the party, so to speak, as far as the next generation? And people who are selling or want to retire are obviously motivated to hand over the keys. They also have a tendency to try to create the team for the new owner that are coming into it, and a lot of times, that's trying to pound a square peg into a round hole to where they should not be in that position, whether it's from the financial standpoint or the operational standpoint. We really need to step back and say, "Okay, really what makes sense for this business?"

And you do that through the long-term strategy of the company, which succession planning isn't a replacement to it, your succession planning is a different process that a business has to go through in order to do that and that's what carries it through the one generation or one owner to the next owner.

Heidi J. Ellsworth: So Rich, and I know you've had experience all the way around, let's take this and talk a little bit about this exit strategy that we're talking about and the different types of programs that are out there, whether it's employee-owned, private equity, for the next generation. Can you go through some of the pros and cons on those different types of exit strategies?

Rich Carroll: Absolutely. Employee ownership, or an ESOP, I think the benefits of that is that you're going to have employee engagement. They're going to stay. They're going to want to be involved. You can plan it out. It's a longer process so you can have more influence on how things are going to survive, your culture, you're not making a big change. The pitfalls of that is it's expensive and there's tax ramifications. There's a bunch of other things that are involved. You got to bring a bunch of third-party people in and make sure that you're fulfilling your obligations.

The next one is a private equity buyout. Pretty simple. It's usually a quick exit for an owner. In some cases, they have to stay on and manage. The big pitfall for me is there's not typically going to be a legacy. The private equity firm's going to come in and do what they need to do to make their money. There's going to be changes. There's probably going to be employee turnover. No matter what you do for retention, eventually that typically happens. So that's a pro and con for private equity.

The generational succession is, the benefit of that is that you're keeping the legacy, you're keeping the company going on. Many companies are third, fourth, fifth-generation and it's successful. A lot of people think turning over to the second or third generation, the company's going to go out of business. That's simply not true. The vast majority of businesses stay longer than two or three generations.

The downside is do you have somebody in the family to be able to take over the business? But there's solutions for that. If you're leaving a company, what roles were you doing? So when you leave, what vacuum? So try to fill that vacuum, either by mentoring the family member or family members to fill those spots or bring in a management person. You can give them a slice of the pie or you can give them some kind of compensation to come in and mentor if the person's not ready. So there's a lot of options with generational turnover.

Then there's the management buyout. Me and Andy are familiar with this option. Typically, the managers are going to buy out the owner and that's usually successful because you're keeping your management team together and you're going to be able to stay on your strategic plan. Once again, there could be some financial issues with that option, being able to pay the owner. So that's one of the cons.

The last thing is an external sale, maybe your competitor, maybe some of these conglomerates that are roofing companies. Once again, the benefit of that is a quick exit. You can usually exit pretty quickly. So if you don't have family members to hand it to, or if you don't have employees that you feel like should get a piece of the pie, that might be a strategy for you. Once again, the downside is it's not a legacy plan. The company's going to change.

The number one thing that I run across with owners when they're talking about succession is not the money they're going to get, but the legacy. If you have 50, 70, 90 employees, you literally have 300 people that you're responsible for every week that you're taking care of and that's what the owners are concerned about. They're concerned about those employees. So some of these options just don't fit them. So they're going to have to fight and do some of these other things within ESOP or a generational turnover.

But for us, as we talk to our customers, the number one concern is, "How can I take care of my employees?"

Heidi J. Ellsworth: Brittany, I heard you. You just were like, "Yep, that's it."

Brittany Wimbish: Yeah. It's a big... Again, when you have an owner-operator to a certain degree and they've been in the field before and they're second and third guy and their crews have been around for, like I said, 15, 25 years, it's emotional for them to go, "Okay, how do I know they're going to be okay? They've been relying on me this long. How can I hand off that responsibility and that security be there?"

One of the things my dad's always said that he's most proud of, he's like, "We may not be the biggest roofing company in our area, but you know what? I know I'm taking care of families. I've given opportunities. I've created a community within our company, a family." [inaudible 00:35:26] and pride in that, that when you are handing it off to someone with however many options that Rich has listed out, that emotional tie is still there, especially when you're a small company.

So yeah, that definitely resonates with what we're going through.

Heidi J. Ellsworth: Yeah, big time. So we just have a question. Thank you so much. What are some ways to finance a manager buyout? So Rich, do you want to start there and then Andy?

Rich Carroll: I'll let Andy go first. I think Andy will have a much better answer than me, but...

Andy Anderson: Well, it depends on the situation, especially the management. Obviously, they need to earn or have some equity going into the actual transaction. It is generally the owner generally has to carry a contract with it. I mean, they have to have some process in which that they get paid out for the value of the business over a period of time. Now, tax-wise, that can work out well for the owner or if they want to be in a situation where they just have their money and they're gone, don't see very many of those kinds of situations.

So a manager buyout is more of almost a partner transitioning from one person or an entrepreneur or a partnership into a multi-level company that has professional managers and managers moving. There's always leveraging the assets of the company as a way of buying out the owner as well. So you get a bank involved in the financing. SBA has programs for those kinds of transactions. There's also secondary mezzanine type of financing companies that can get involved in those, but generally speaking, it's the manager group seeking out ways of financing it, but also involving the owner in the process.

Heidi J. Ellsworth: Yeah, and working together.

So Jeff, as you've been looking at some of these, I'm sure your phone has been ringing, just like everybody else's phone out there, with private equity companies. Looking at these different solutions, but now really wanting to continue to go down the generational path, what are some of your thoughts on all these different exits?

Jeff Suess: Well, I think you need to pick a lane and stay in it. And in my case, I am really committed to the generational. Eric has worked for our company for 28 years. That's a long time. He runs the maintenance end of the business, taking over the production side of it. I'm sure that he'll be able to do that, so I'm confident that that would be the direction that I'm going to go.

But I do, as you said, yeah, there's so many different... It seems like everybody you talk to has a different opinion of it because everybody's situation is so incredibly unique, and I'm fortunate in that I talk to a lot of different people. As you know, I'm here in a captive insurance meeting right now and so there's 172 people I can talk to get an opinion that are probably sitting in a similar queue to myself.

So you can find out just about any way to do this if you want, but I think the advice would be to pick one and stay in that lane and as Rich had said, do it as early as you can. I said once that or maybe I heard it once, is that the day that you get into the business, you should also be thinking about how you're going to exit the business. That early is how you should probably look at it.

Heidi J. Ellsworth: I have to tell you, I don't think people, I agree with that 100%, but I don't think people think that way. I mean, I come from a contracting family. My dad and mom had a general contracting company and there was never any talk about it, never even thought. All I kind of knew was I wasn't really interested in moving with their business, and then all of a sudden, here I am in the construction industry doing something different but it kind of keeps you there.

But I think a lot of times, there's no conversation and you don't even know if your children are really that interested and when that's going to happen. So let's talk a little bit-

Brittany Wimbish: Oh, can I, before we move on?

Heidi J. Ellsworth: Oh, yeah. Brittany, go, yeah.

Brittany Wimbish: Is it okay if I just finish?

Heidi J. Ellsworth: Yes.

Brittany Wimbish: So one of the things about transferring for the manager buyout, I think the first step, which my guidance has been, do you have even a valuation of where the company's worth? Because based on the revenue, it has nothing to do... I mean, it has something to do with it, but it's not dollar for dollar what the company is going to be worth. So protect both sides of the management side that wants to take over, and the ownership side, they need to find out what the company's actual market value will be.

And I know CPAs can do that. We've had our CPA do it. We've also had third parties look at the company to do that. So for Lewis, if he's considering looking at it that way, the first step to even before starting the financial side is really decide who you're going to use to figure out what the company's worth because it'll protect both sides of this transaction and then move forward, because depending on that price, then your options will open about how that transition will happen and how you'll decide to finance that, whether it's an SBA, whether it's the business itself is financing it, the contract with the ownership, that sort of stuff.

So that would be my suggestion for that first step forward.

Heidi J. Ellsworth: And Brittany, from what I've seen, because actually I've been down this too, valuations are not cheap.

Brittany Wimbish: No.

Heidi J. Ellsworth: It's pretty expensive to get valuations done. So if you're really serious about it, you need to not be scared of that.

Brittany Wimbish: Yeah. And again, having those conversations early, if you're a part of the management group that wants to take over or in part of the owner's family or whatever, those open conversations, so you guys can do it together as a partnership because it will be a partnership depending on how that financial contract works out in the end, you're going to be a partnership for a while. Whether or not the company's transitioned over or not, you're still going to be financially attached to each other.

Heidi J. Ellsworth: That's great advice and he says, "Thank you. That's awesome."
Please keep the questions coming. Lots of good questions. You have experts here who have been through it, so please keep asking questions or comments. We would love to have that.

I do want to move on to really preparing and executing a plan. So Rich, as companies are coming to you and saying, "We want to do this," where do you start? How do you start even putting together a plan?

Rich Carroll: Well, you got to understand the goals of all the parties involved. What's the owner trying to do? What's the successor trying to do? So getting to learn what they're interested in and how they're going to go about this process. It's important to understand what the owner's goals are and also the successor's goals.

One of the things that we emphasize is that the owner and its successor have a shared vision for the business. That usually relieves the owner's worries about legacy, so you have to have those open conversations about how are you going to succeed? There's also employee and stakeholders' concerns, so you have to address them as well. So you want to talk to those parties and make sure they understand. I believe that the employees, you should be as transparent as possible. You should bring them in as early as you can. Anytime a milestone is met or before any public disclosure is talked about, which is a big one because a lot of times, employees don't like hearing what's happening with their business from a vendor or for somebody else.

Number two, mapping out the transition. How's this going to happen? When's it going to happen? Why is it going to happen? All those questions, mapping it out totally, making sure that there's a timeline, there's a successor development program, maybe the person you're asking to step up is not ready. So if you've got five to seven years, now's the time to start getting them the background and the skillsets they need to be able to do so. Knowledge transfer, how are you transferring the knowledge you have as an owner over to the successor? And then there's the financial and legal considerations as well.

The third thing is ensuring alignment and communication. Once again, transparency with everybody. You should have nothing that you should be talking about behind closed doors. Obviously money issues may not be something that you're talking publicly about, but everything else should be transparent and you want to make sure your internal and external messaging is both the same from the owner and the successor, so that message that's being delivered is exactly the same.

The fourth thing is executing the plan. Once you put it in place and you map it out, now we got to execute. You also got to be flexible because there's going to be things you're going to need to change. You want a step-by-step implementation. You want to monitor what's going on and make adjustments as needed. And then you want to know what the exit strategy is for the owner. Is it going to be a Jeff Suess four-days, three-days, two-days exit? Is it going to be on a drop-dead date? Everybody needs to understand that.

And here's one thing that a lot of people don't think about, but it's very important. It's post-transition support and evaluation, especially if it's a family business. You're going to have to help after you leave. I've heard so many owners say, "No, I want to walk away," but there's Thanksgiving dinners, there's Christmas, there's Easter. Those conversations are going to come up and the owner's going to want to know what's going on, so let's have a plan for that. How are you going to stay involved? How are you going to evaluate what's going on? Do you have a board?

I highly recommend companies that are large enough to have a board and have board members that are not involved in the industry sitting on the board so you get some diversity. I always like to have a board that's responsible for strategic planning, executive compensation and that's about it. I don't want them involved in anything after that, but that leaves the management back to the C-suite instead of having the board run the operation.

So there's the five steps that we try to follow when we walk into an organization and say, "Okay, let's start this plan."

Heidi J. Ellsworth: Brittany, were those some of the steps it happened for you?

Brittany Wimbish: Yeah. You know, thinking back on how the company was transitioned over to my father's buying group, the two owners that were there stayed on it's kind of a board of directors from a looser term than Rich is saying, but there was financial reporting that was given monthly for reviewing. There was always an open discussion because out in Seattle, we're going high and low with our weather and revenue. It's just a big wave all the time.

So constantly talking about that, and the economic status and that the ownership did not have business degrees. So it's one of those things you're operating off of experience, and so if you have the opportunity to have the previous ownership be there for a sounding board from the financial aspect, not decision-making for the management side, like Rich is saying, that's priceless. So if you can have that negotiated into that transition, I think it's valuable for everyone on each side, especially depending on how that contract's written. If you're paying out over X amount of years, their financial vitality is attached to this company is still successful.

So it's mutual to continue to have those conversations, and they'll peter off as your experience grows and you take over more things and you've gone through some economic cycles and whatnot, but I think that's something that's really important if you have that opportunity to do so.

Heidi J. Ellsworth: Wow. And Jeff, you're walking through this right now. Goals for you and Eric working through this process, timelines, is that still in the process?

Jeff Suess: Yes, it's very much so. In fact, next week when we get back to the office, we're going to sit down and discuss timelines and goals. One month, six months, one year, three years. If there is a three or a five, it'll just be part of the conversation because I am not 100% sure. I'm letting Eric and Matt make a proposal and a presentation to me and that's already been started, but when I get back. So yeah, a timeline and we'll see if we're thinking the same way.

What makes it also hard, one thing that I haven't said, is I still like what I do and so maybe that's the part that... But I realize, I realize, I realize that I'm not going to do this forever, but unfortunately, I still like it.

Heidi J. Ellsworth: Jeff, I was thinking the exact same thing and I have to tell you, I mean, I love what I do so much and people are like, "Well, when are you going to retire?" I've had so many people say that, "When are you going to retire?" I'm like, "I don't know. I don't really want to."

But I think from this conversation today, it's really given me a thought of, "You know what? It's okay to have a long timeline, to have that, to be able to look at five, seven, 10 years," and that doesn't seem as scary to me. I don't know why, but it just seems like, "Okay, I have time to get my head, figure out my next step." So I'm just feeling it. I'm just feeling the same thing here.

Jeff Suess: Yeah.

Brittany Wimbish: One thing I wanted to add, especially for back to a manager buyout, I think people who are reaching out to buy into [inaudible 00:50:28] already exists as an employee standpoint, I think if you are serious about it, you need to set your parameters and your drop-dead dates outside of theirs because those times will get drug on longer than you want it to and really make hard lines and communicate those hard lines because as being the younger side of that transaction, I have opportunities. And so if this opportunity is not going to go in the timeline or the way I'd like it to, I need to set a boundary for myself to find an alternative to open up other options, those sorts of things.

So definitely from my side of it, maybe not have the answer about how it's going to happen, but know you want to do it and work together and then set your boundary about when's the next step.

Heidi J. Ellsworth: I think that's so smart, Brittany, because look at us. We're dragging our feet, right? "No, we got to go look at this."

Andy, real quick on the financial part of it, really looking at that, according to what Rich was saying about setting goals, putting all that together, where should the financial part of that, what should they be thinking about too?

Andy Anderson: Well, it's a lot of entrepreneurs or singly owned businesses will use their business and run a lot of, say, expenses they wouldn't normally be paying for themselves and have it run through the company. So it changes the profitability that the company really shows in there. That stuff needs to be weeded out and transparent with the proposed new ownership to let that stuff out there so that they know.

The other side to it is usually on a generational changeover, there's not much impact to operations. In a management buyout, there's not much impact to an operations. When you start selling to an outside party, whether it be a private equity, a venture capitalist or just an outsider purchasing it, there's always an impact to operations. And so that needs to be taken into account, and as you financially put together a package, that is, you want to have as an owner or you want to pay as a purchaser in there

Heidi J. Ellsworth: And to that point, and Rich said it at the very beginning, what do your customers think? What do your vendors think? What's happening out there? So I do want to go back, Rich, because I want to bring all this together. I can't believe this hour's gone so fast, but I would like to bring what are some of the common mistakes to avoid? I would love for you to take us through that, share some of your thoughts overall.

Rich Carroll: Sure. I think the number one mistake that's made besides not having a plan is people being impatient. They're impatient for the successor to step up or the successor's impatient about taking over. So you have to be patient and you have to have the timeline. If you have the timeline, stick to it.
Right after that, which is contradictory to what I just said, is I call it spots. A lot of consultants call it spots. It's succession planning on the top shelf. You put a succession plan together and then you stick it on the top shelf. It has to be active. I see that a lot as a mistake. Some people do strategic plans the same way they call those spots, put it in a strategic plan, but that's for another story.

I see that people don't focus on the hard issues, they focus on the soft issues. Soft issues as far as I'm concerned are taxes, P&L, operational stuff. They don't talk about the relationship within the family. So I recommend that families meet on a regular basis once a month, every family member, not just the ones involved in the business. You probably have an estate plan in place, but you don't have a company plan in place. So if you talk about that on a monthly basis, it's so much easier to follow through.

Most people don't have a conflict-issue strategy. How are they going to resolve conflicts if there's multiple children involved or multiple employees involved that are going to be taking over?

We talked about the shared vision. It's very key that everybody's on the same page with that.
No management selection process. I know a lot of companies that don't have job descriptions, so how are you going to have someone fulfill a CEO or president's role if you don't have a job description? And now, if the person that you think is going to succeed for you, do they fit that metric? If they don't, what do you need to do to correct it? So have a management selection process in place.
Conflicting assumptions. Obviously, if you don't talk, everybody has their own idea how things are going to end up.

We talked about a development program for your employees, not just your family members.
Working outside the business. I hear a lot of owners say, "I want my child to start right out of high school or college to come work for me." I highly encourage that you allow them to work outside the business. They're going to bring more information back. If their passion is to work for you, they'll be back, so don't force the issue.

Ownership versus management. Two different things. People that are owners are not managers. And if you want to know an example of that, look at all your corporations. I own a lot of parts of corporations and I have nothing to do with their management. So you can be an owner of a company or hand off ownership to your children and they're not involved in the management side. So there's a way to go about doing that. So that should be talked about.

I believe, depending on your family structure, that everybody should get a part of the company. That's my belief if someone asks me what I think, and I think it should be split equally. There's ways to do stock options that people have shares that are non-voting. So if you have somebody working in the business, they have voting shares. Someone out, they don't.

We talked about a realistic timeline, contingency measures if something happens, transparency with employees, making sure that the knowledge transfer happens and employee turnover and transition plan, what's going to happen? So there's some of the mistakes, common mistakes that we see when we come in and we start talking to a company.

Heidi J. Ellsworth: That's so, "Been down this road." So thank you all. I want to just a few last thoughts. Jeff, last thoughts of advice for everyone out there?

Jeff Suess: No. Yes, I used that phrase a minute ago. Pick a lane and you got to drive it to the end. Otherwise, you'll just be spinning in circles.

Heidi J. Ellsworth: So good. Brittany?

Brittany Wimbish: My advice would be have conversations. You don't know what avenue you can take or what your options are, especially from Lewis's side. You need to have conversations and talk to people that have done it before so they can give you some insight and some options to what might work for you.

Heidi J. Ellsworth: Terrific. Andy?

Andy Anderson: It's to surround yourself with knowledgeable people that are all on board with what your plan is, whether it's outside consultants, internally with your management, but get yourself surrounded by good people.

Heidi J. Ellsworth: Yeah, that's great. And Rich, we have your information in the chat right now. So just real quick, you are doing this for companies all over the nation?

Rich Carroll: Yes. I've been outside the country as well, so we're an international firm.
Once again, if you're stuck on something, don't guess. Reach out for help. If it's financial, if it's you need an attorney or you need tax help, reach out. There's people there. There's a lot of resources. Obviously, Carroll Consulting would be happy to help anybody that needs that help. Just get in contact with us and we'll reach out and do a free consultation and we'll go from there.

Heidi J. Ellsworth: And we have those on the site, both in the directory and on the site. You can find it in the R-Club. You can also find under our consulting where you can some free time with Rich to have a short consultation to see where you're at and where you want to go.
Everyone, thank you so much. This has been absolutely amazing. Thank you all so much for your time today.

Andy Anderson: Thank you, Heidi.

Rich Carroll: Thank you.

Outro: Thank you. And for everyone out there, again, I want to say thank you to Carroll Consulting. Thank you, Rich, so much for such an important topic.

I also want to invite everyone next week. So we have two in a row, very exciting. Next week, we're going to have the experts from GAF here talking about storms. And it's the season, I think it's the season year round now, but it's the season. So these are some amazing people who can really bring, if you're doing retail, if you're doing storms, whatever you're doing, they're going to bring the resources that you need, so join us next week.

And I want to say thank you all. This will be available in 24 hours. Thank you for a great conversation. Thank you to our great panelists and thank you for all being on here. We'll see you next week on Coffee Conversations.