(c) 2006 Newsday. Reprinted by Permission
BUSINESS AND TECHNOLOGY
Monday, November 20, 2006
SMALL BUSINESS - JAMIE HERZLICH
You’ve paid your dues and poured everything into your business.
You’ve scrimped and saved over the years and sacrificed all but your sanity to grow your company to where it is today.
But what happens tomorrow?
At some point you may want to retire. Or unforeseen events may force you to retire.
Without a successor, your business can be in jeopardy.
“Planning is prudent” says David J. DePinto, a partner at the law firm of DePinto Nornes & Associates, LLP in Melville who specializes in trusts and estates and succession planning. “Those who plan reap the benefits and those who don’t plan and wait until they die usually have a mess on their hands.” Still, experts say about two-thirds of small businesses don’t have a succession plan in place.
“I think CEOs often don’t think of it enough,” says Tom McLane, Vice Chairman of The Directorship Search Group in Greenwich, Conn., which assists companies with succession planning. He suggests companies consider the short and long term.
In the short term you need to address the “what if the chief executive officer gets hit by a bus” scenario, explains McLane, adding that you need to identify a fall-back person in the company who -- at least on an interim basis – could be the CEO.
“It might not be the person who is going to run the company forever, but is someone who will keep it from being derailed over the short term,” he noted.
For development of a long-term plan, you should start five to seven years before a major event such as retirement is expected, according to Michael Cohn, managing director of Phoenix, Ariz.-based CFG Business Solutions LLC which specializes in succession planning.
As part of the process, first consider whether to pass on the business to a family member or key employee or sell it, he says. If you decide to pass it on, then consider if you have competent management, looking at all candidates inside and outside the company, not just at family members.
“A lot of people make emotional decisions to transfer their business to a family member, and the family members may not be the best choice,” Cohn says, noting that you can pick an outside manager to run the company and still have the family own it.
But if you feel compelled to pass it on to a son or a daughter, identify the skills he or she is lacking and try to help develop them. The same applies to non-family members. A good way to do this is by having your potential successor work in all levels of the business.
That’s what Lisa Rose did when her father, Ric, was grooming her to take over as chief executive of Clare Rose Inc., the Patchogue-based beverage distributor.
Rose, who is the third generation to run the 70-year-old company, says she did everything from loading trucks to stocking beer and crushing cans in the recycling center.
“I can’t thank my father enough for having the foresight to let me do that,” says Rose, 38, who runs the day-to-day operations jointly with her cousin, Sean, who is chairman. “You need a decent amount of time to plan. It was about a 10-year process for me.”
To be sure, it can be less than that.
It was a six-year process for Roy DiMarco, president of Harrison Leifer DiMarco Inc., an ad, marketing and public relations firm in Rockville Centre. He merged his firm with John Harrison and Herb Leifer as partners in 2000 with the understanding that they would retire within five to six years and he’d buy the balance of their shares. They kept their word, and Harrison, 61, and Leifer, 56, retired on Aug. 31.
DiMarco, 44, says there was no confusion when he took over because he had been part of the decision-making process from the beginning. Constant communication between the partners and their employees and clients was key, he says, adding that there also has to be a willingness by current owners to step down.
Some owners have trouble relinquishing control. Some try to create clones of themselves, not realizing the skills they bring to the table may not be the ones needed to drive the company’s future success.
You need to change with the times, says Henry Hildreth of Hildreth’s Department Store in Southampton, who considers himself more of a risk-taker than his late father.
“We never took a loan out of the bank until 1980,” says Hildreth, 50, who is the fifth generation to run the 164-year-old store. He says his father took a more conservative approach growing up in the Depression era. But without taking some risk, the company, which now has three locations, would have never grown.
So keep that in mind when the next time you think you have all the answers, and don’t delay the inevitable.
Last time I checked, you weren’t getting any younger.