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Succession programs aid small businesses
By Paula Schleis
Beacon Journal business writer
Published on Monday, Apr 14, 2008
''We were struggling with how we could afford to buy the partners out and still grow the company,'' said Dave Heidenreich, co-founder of the firm headquartered in Sharon Center.
In 1990, the group — now made of four companies that develop products from power transmission components to medical equipment — began a careful and decades-long transition to an employee-owned enterprise.
Today, about 58 percent of EBO Group is owned by employees in a profit-sharing plan, with the goal of eventually being 100 percent employee-owned, Heidenreich said.
But many — if not most — companies are not ready for the future.
Failure to plan for ownership succession is the greatest threat to businesses with sales of less than $3 million, according to the American Institute of Certified Public Accountants.
Only 30 percent of companies will survive beyond their original owners, and only half of those will ever make it to a third owner.
''The data is pretty depressing,'' said Chris Cooper, who helps coordinate ownership succession training programs for the Ohio Employee Ownership Center, based at Kent State University.
The center has received a state grant to expand its efforts to help business owners who want their enterprises to outlive them.
In addition to regular spring training programs in Cleveland and a fall schedule in Akron, the grant will pay for OEOC to add special classes in Canton and other areas of the state, seminars to be broadcast on the Web, and workshops aimed at economic development professionals.
The objective goes beyond OEOC's mission of serving employee-owned companies. That's because about a decade ago, the center recognized that many of the businesses calling for information were in a crisis situation, Cooper
said.
Business owners usually fail to plan for their own replacements because ''they are, by their nature, doers,'' Cooper said. ''They're busy running the day-to-day operation of the business and they don't think of a time when they won't be working anymore.''
But they can hire professionals to think about that for them, he said. OEOC keeps a database of specialists online.
Cooper also recommended asking for referrals from peers in their business groups.
''Interview more than one,'' Cooper advised. ''Find someone who wants to accomplish what you want to accomplish instead of someone who wants to fit you into their idea of what should happen'' with the business.
Here are some other considerations:
• An important step in planning for the future is grooming key managers.
Even if you plan to sell the business, the buyer ''won't give you top dollar unless they know the business isn't going to fall apart when you leave,'' Cooper said.
Also, there needs to be someone who can step in and conduct daily operations if the business owner dies or becomes disabled unexpectedly.
''A lot of times, the business owner and the business die on the same day,'' Cooper said.
• Create an advisory board, even if it's just one or two people you have dinner with once a quarter, to talk about ideas.
Where large companies have boards of directors, small companies with a dozen or fewer employees often think they don't need outside advice. They would be wrong, Cooper said. At the very least, the company's lawyer and/or accountant could serve as sounding boards.
• Don't expect your children to follow in your footsteps. While family-run businesses were more popular half a century ago, it's more likely your kids will seek a different career today.
• Know what your own retirement goals are. Are you dependent on the proceeds from the business for your retirement? Lack of estate planning and not understanding tax issues could bankrupt the business when you leave.
• Selling to a third party has its own risks. The buyer might simply be interested in getting the company's customer list or patents or key personnel.
• Succession planning might mean rethinking the future of your product or service. If you're making buggy whips, it will be hard for a new owner to succeed.
''You may want to diversify and update what you do,'' Cooper said.
Heidenreich said EBO Group's careful planning has enabled the company to grow. In the past five years alone, revenue has gone from $8 million to $20 million.
But officers must stay vigilant to make sure the group remains healthy for future owners, especially since they've made the decision to remain independent and not to sell to a larger enterprise.
''You have to pay attention to it every year, to make sure we can afford to continue to evolve the ownership of the company,'' he said.
Tom Bader is considering his own company's evolution as he approaches his 50th birthday.
He would like to see Ohio Gasket and Shim outlast him and his brother, John — who took over the Akron company from their father — but neither has children interested in the business.
So Bader recently attended a succession planning seminar to consider his options. While the Baders haven't made any decisions yet, Tom Bader compared it to buying life insurance.
''You don't do it when you're 85 years old,'' he said. ''You buy it now so at 85, you don't have to worry about things.''
Paula Schleis can be reached at 330-996-3741 or pschleis@thebeaconjournal.com.
Get the full article here.
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