American Detection Specialists President Bryan Morris assumed control of the 25-year-old family business following his father's sudden death in 2011. Morris says the transition went smoothly because his father, Jim, had a contingency plan in place.
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Opening a small business is so labor intensive, it has been likened to giving birth.
Thereafter, the amount of energy, sweat and love that go into the day-to-day operations of the company give owners a sense of raising a child.
What happens when the parents can’t take care of their prodigy any longer? That’s where succession planning comes into play.
“If you don’t show up tomorrow, who is in charge, who is going to pay the bills and take care of your customers?” asked John Piatchek, president and founder of Piatchek & Associates Inc. “At some point, everybody leaves their business – whether they carry you out kicking and screaming or in a bag. The ones who are prepared for that moment can leave behind a legacy.”
Unlike larger companies with tiers of managers anxious for promotions and boards of directors prepared to recruit talent, Piatchek said small-business owners often are the only ones at a company who know the ins and outs that make the business hum.
Bryan Morris, president of security firm American Detection Specialists Inc., knows all too well how life can change in an instant.
“My father passed away two years and three months ago,” he said of Jim Morris, who founded the company in 1989. “To say it was unexpected is an understatement.
“He was at our Monday morning meeting, went home and had a heart attack. It happened just that fast.”
Jim Morris already had an exit strategy in place, something for which Bryan Morris was grateful.
“Without it, it would have been complete devastation,” he said.
“It’s not a huge concern until all of a sudden it is, then it’s the biggest problem the business might ever face.”
But many family-owned businesses aren’t as prepared.
According to global data collected by Family Firm Institute Inc., family-owned businesses create an estimated 70 to 90 percent of global gross domestic product annually. In the United States, small and family-owned businesses account for about 64 percent of the nation’s GDP, represent between 80 and 90 percent of all companies and employ 62 percent of the workforce. However, only about 30 percent of family businesses make it to the second generation. Of those, less than 12 percent continue into the third generation.
Learn as you go Morris said his father’s exit strategy didn’t happen in a day – he believes it took at least a decade to develop.
Under a buy-sell agreement following his father’s death on Nov. 21, 2011, Morris moved to majority owner of the company in February 2012. He said the plan also made sure his stepmother and company officer, Rendy, was taken care of financially.
“The buy-sell agreement was funded through life insurance and that kept the business going,” Morris said. “It was never designed to make anybody wealthy. Dad wanted to take care of his wife and ensure his business could continue debt free.”
With 23 years in the business under his belt, Jim Morris was prepared for the next step, but recent startups still concerned with ironing out the daily details might have succession planning on the back burner.
Jeremy Bartley, CEO and co-founder of 2-year-old digital business card company QRPro, said the Nixa firm is still in planning mode.
“I guess you could say we have a plan and a plan to plan,” he said of the three co-founders’ desire to get their verbal plan down on paper. “QRPro is a lifestyle business that we plan on growing into a staple in southwest Missouri for innovation and technology. As we get bigger and grow our company, a succession plan will become very important.
“At that point, the succession plan for us becomes helping people find the role or grow into the role that fits their talents and dreams.”
Bartley said the three owners hope to leave behind a successful and sound company for their children, but as a relatively new kid on the block, the trio doesn’t have all the kinks worked out yet.
“I think that it is necessary for every small-business owner to think about a succession plan, but I can understand not having everything figured out,” he said.
“As a startup, we don’t really have the luxury of having the sixth man come off the bench to step up into that role. So while we do know what would happen if the worst happens, you can never really prepare for it.”
Tying up loose ends A chartered financial consultant since 1972, Piatchek has focused the last decade on helping business owners, including the late Jim Morris, prepare though his proprietary Blueprints for Tomorrow program.
He has identified three distinct types of succession: outright sale of the business; sale to a key person or family member; and what he terms passive succession, a systemized plan in which an owner passes day-to-day operations on to a family member or key person. In lieu of full retirement, Piatchek said the owner can work a couple days a week, continue to draw a salary and have time for other interests, such as travel.
“A 5-year-old business probably isn’t ready for a long-term succession plan. There are just too many shifting variables to consider,” he said, adding a lot can happen in an owner’s life during those formative years. “That being said, it’s never too early to have a contingency plan for all those what-ifs.”
Piatchek said small-business owners often have the, “I can do anything on my own,” mentality – and rightly so, having started their own business – but succession planning isn’t something an owner can tackle single-handedly.
Security specialist Morris said in his case, it took a team.
“You need a team in place that you trust, that know you and know your wishes,” he said, pointing to his banker, lawyer, accountant and insurance adviser. “You don’t know everything and they don’t know everything, but together you know a lot.”[[In-content Ad]]
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