TRANSITIONS

Q & A with Robert & Chad Counts How are businesses transitioning to the next generation? Robert - Not very well. It’s a struggle. It seems to be that the owners want to stay owners when they are no longer working in the business and expect their children to run the business without the authority and the pay for running the business. Younger people want to take over the business often times before they are ready. They are not ready because no one has prepared them to become ready.

Prepare them by giving them responsibility and authority. Chad - These things can become very difficult primarily in three different scenarios: 1) The transition and split of the business is dictated by someone outside the day-to day-oper- ation. 2) The next generation begins building and growing the business before a valuation and transition plan are in place so they effectively are costing themselves money by growing the business. 3) The current generation of owners stop growing the business and leave the next generation behind in the marketplace. How long is it taking for succession? Robert - The transition is taking anywhere from 2 years to 20 years. Owners need to be talking to the next generation about the plan 5-10 years before it changes hands. It needs to be a conversation and dialogue that begins. If people don’t know, they will make it up. Uncertainty is unnecessary and unproductive. It wears on them, it’s a burden. Chad - What Robert said, seems to be a minimum of 2 years to have the paperwork drafted and valuation put in place. The other extreme, plenty of owners want to pass on the business when they die. Is there usually a buyout, position changes, etc.? Robert - Almost all transitions are owner-financed. The sticking point is usually how much the business is actually worth. It helps to have an independent and trusted person evaluate the worth of the business. Chad - Usually a buyout is in place with a lump sum up front and guaranteed payments over a certain period of time. Normally, the current owner’s don’t want to take the money all at once and have a minimum time window they want to draw the payments. What is their plan to do a transition? Robert - There a few written plans. But, there are a lot of verbal plans without specifics. Chad - Most often when we start the current owner has a plan and believes that the next generation understand that plan. Then when we ask the next generation; they tend to have minimal details of the current owner’s plan. What are the differences between generations in their opinion that affect the workplace?

34 Automotive Recycling | September-October 2015

Robert - Younger people are quicker to make changes.

Really, they are excited about making changes. The older generation will be open to change, but are much slower to implement it. Chad - The next generation has many plans and is often disappointed or surprised by the time and effort required to see the changes through. The current generation tends to be reluctant to change and particularly reticent when considering the financial costs of change. What is the usual role of the older generation once transition is

done?

Robert - A mentoring relationship, a sounding board … it is important to only contribute when asked. Chad - RETIREMENT. At least for the short-term, it is important that after the change in ownership there is time away from the business to allow the employees and new owner(s) time to adjust to the new roles. These tran- sitions can increase in difficulty if there is a sense of some employees being a part of the old regime or the new regime.

What is the position of the new generation once it is done? Robert - Many take the business to the next level if they

aren’t burdened by too much debt or remaining expenses. Chad - Managing profitability, cash flow, inventory levels and establishing company culture should be central to the change-over. What are some comments from helping your clients that they might have done better? Chad - Plan early in terms of experience, equity and pay- ment. The next generation needs to know each aspect of the business to properly oversee the operation. The current generation needs to consider equity or payments made to the next generation if they want the next generation to be in a healthy financial position to buy the business. How do you recommend companies avoid the trappings of this type of transaction: hurt feelings, negotiating with family, money handling, etc.? Robert - Start the conversation early. Both sides need to let the other side know what they are thinking and what they want. Get a realistic value of the business. If the transition period is going to be long be sure that the next generation is compensated now for the growth of the business. Make sure that the next generation works in all parts of the busi- ness. You can start that now. Chad - Treat the transition and planning like a business not a family. Prepare any potential future owners for success; after all if they fail, the current owners will be out of some money as well. Too high of payment or tying them to other owners who will not carry their weight is a risk nei- ther can afford in the long run.