Views
9 years ago

WINTER 2014

  • Text
  • Fastener
  • Fasteners
  • Products
  • Industrial
  • Distributors
  • Continued
  • Manufacturing
  • Bolt
  • Screws
  • Association
Distributor's Link Magazine Winter Issue 2014 / VOL 37 / NO.1

90 THE DISTRIBUTOR’S

90 THE DISTRIBUTOR’S LINK ARE YOU WILLING TO LET GO OF THE WHEEL OF THE CAR Start with changing from "family first" to "business first" to prepare your company for sale, Ryan Barradas and Tim Young advised Specialty Tools & Fasteners Distributors Association members looking at options for the next generation. "Run your business everyday as if it is for sale," Young advised at the conference on "Succession or Exit" during STAFDA's 37th annual convention in Las Vegas. Treat it as an "asset under management and develop a culture of 'vision and values'." In addition to evolving from "family first" to "business first," Barradas suggested company owners need to change from "entrepreneurial to professional management." Selling or passing to another generation requires you to be "willing to let go of the wheel of the car," Barradas counseled. You need to reach the point that you "don't mind if it crashes." Ready or not, eventually everyone will leave their companies due to death, disability, voluntary sale, retirement, bankruptcy or orderly liquidation, Barradas and Young of WealthPoint.net described differences between a family business and "business first" company: "In a 'family business' there is a place for all family members." Pay may be equal with no direct accountability. Resources are used for family perks; leadership is bestowed; family conflicts are avoided; family longevity is important; and only "insiders" are on the board. In contrast, in a 'business first' company only qualified and experienced family members may work and compensation is based on position and performance. Resources are used strategically, leadership is earned; there are clear boundaries and a process to address conflict; skills and experience override longevity; and there are outside influences on the board. Beyond the possible sale of a business, succession planning allows a company to become "financially independent of asset and the asset becomes operationally independent of you," Young explained. Even if a company remains in family ownership, outside management may be the best alternative. By John Wolz editor@globalfastenernews.com "The gene pool is not the deepest pool of talent," Barradas explained. The second and third generations often haven't invested in training, Young added. Owners should establish policies that family "can't be the leader unless you meet qualifications required of outsider." Planning The Transition If you haven't prepared to be financially independent, "you will never let go," Barradas said. The number one fear of business owners selling their companies is that they will run out of money, Barradas finds. There are questions owners should be asking: . Will shares be held by only those who work in the company . Will shares be among all family members with voting control in the hands of those who run the company . Or will ownership be shared among all family members regardless of who works in the business There are emotional family issues such as "Keep in family or sell" Coordinating planning with siblings, cousins or others . How will family "glue" be maintained Who should be involved in planning: Advisors, family, management, key employees Beyond business issues, personal, lifestyle, estate, asset protection and philanthropy need to be considered. Transition Questions . Does ownership remain in hands of those who run the company . Does the fruit (share in the business) fall close to the tree . Protect company by restricting ownership . Do those who work in the business own the business and receive the rewards . Who decides who can and cannot work in the company please turn to page 91

THE DISTRIBUTOR’S LINK 91 ARE YOU WILLING TO LET GO OF THE WHEEL OF THE CAR continued from page 90 Do daughters have the same opportunities as sons . What to do for "non-actives" What about compensation discrepancies … e.g. are all family members paid the same . How will conflicts be resolved after Mom & Dad are gone . How to establish fairness for all family members but operating control with those who run the business Conversely, how do you "protect" non-active shareholders . Should active shareholders have opportunities to buy out non-actives . How do you provide checks and balances for the next generation . Respect emotional connections that all family members have to the business. Management Succession Fewer than half of family businesses plan to pass both ownership and management to the next generation, according to WealthPoint.com A total of 41% plan to pass on ownership and management, while 25% anticipate passing ownership but bringing in outside managers; 17% plan to sell the company; and 12% "don't know" what they will do. "Is there a clear vision for the company" Barradas asked. "Who in the next generation has the passion to implement the vision" Tips for Hiring M&A Advisor "Be leery of big promises and high valuations," he said. "Compensation should be weighted toward success fee, not monthly retainers." "Selling your company could take months," You need to have great personal rapport with your merger and acquisition advisor, Barradas urged. "Does your gut tell you they are on your side Young asked. Other considerations for selecting an acquisition advisor: Ability to market your business Strong Rolodex Do they know your industry Do they have success in companies your size In talking to potential advisors you "can learn more from understanding the transactions they didn't close," Barradas suggested.

SHARE A PAGE FROM THIS MAGAZINE

OPTION 1: Click on the share tab above, or OPTION 2: Click on the icon (far right of toolbar) and then click on the icon (top right of the page).

Copyright © Distributor's Link, Inc. All Rights Reserved | Privacy Policy