You’re going to die! Then what happens to your contracting business?

Nov. 7, 2014
What will you do when it's time to transfer ownership of your business? You may not get the chanece to decide without proper planning. One quarter of family business will experience a transfer of ownership in the next five years, according to Pricewaterhouse Coopers LLC, Michael Bohinc. Assemble a proper team well in advance to figure out how you will pass along ownership of your business.

NEW ORLEANS — You thought the restaurant business is shaky? Its failure rate is only number 4. Five years after the founding of a firm, the winner for the top failure rate goes to … plumbing, heating and air conditioning contractors. Number 2 in the going-under sweepstakes is homebuilding, followed by grocery stores and restaurants.

Baby boomers are retiring and the best time to think about succession planning was several years ago. Right now will do. One quarter of family business will experience a transfer of ownership in the next five years, according to Pricewaterhouse Coopers LLC, Michael Bohinc, CPA, told contractors meeting here.

Bohinc spoke at the CONNECT 2014 convention of Plumbing-Heating-Cooling Contractors — National Association. A CONTRACTOR Xpert contributor, Bohinc is the owner of Keeping Score Inc. He has served as the Chief Financial Officer of Norhio Plumbing Inc., his family’s plumbing company in Aurora, Ohio, since 1988. A veteran speaker, he's trained hundreds of contractors in the basics of accounting and on fraud prevention. He also currently serves as the Interim Director for the Service Nation Alliance — Plumbing Group.

Seventy percent of family businesses never make it past the first generation, according to a 1987 book by family business expert John L. Ward, although recent data indicates that’s down to 65%, as if that’s any consolation.

The reason is poor or non-existent succession planning, Bohinc said. Most brides-to-be spend a year working on their weddings. Contractors spend a day or two on their succession plans that have to endure for decades. A succession plan is a process, not an event, Bohinc said, and the process could take anywhere from one to five years.

Why do it? Business continuity; fulfilling the founder’s dream; keeping key talent; and building future talent because the employees have to see that there’s a plan.

Bohinc, personally, experienced a failure to plan in 1998 when his dad had a heart attack; two key employees quit. (Today Bohinc runs the office while his brother runs the field at Norhio Plumbing.) Losing key employees is a common occurrence when the business experiences a shock like an accident, illness or death. Moreover, the wrong employees stay.

So why don’t business owners craft a succession plan? It’s hard. The owner feels uncertain or overwhelmed or is in denial. He fears losing control of his company. He’s conflict averse. He can’t come up with a plan that’s “perfect” so he kicks the can down the road.

In any family business, by definition, family and business are intertwined in a way that can make Thanksgiving dinner way too interesting. Sometimes it helps to consider how you would treat a person in the business if they were an outsider and not your sister.

Seventy-six million Baby Boomers will be retiring and there are only 46 million Generation Xers to replace them. That means that Millennials will have to fill in the rest.

In the old days, succession planning was often done on a hush-hush basis from one owner to another. These days, succession planning should involve key managers and be used as a reason to revamp and improve the business. Having a plan is preferable to an unplanned exit, Bohinc explained, such as death, divorce, natural disaster, too much debt or burnout. If the owner dies and there’s no succession plan, key employees might bolt, the business could lose its credit worthiness, productivity drops and goodwill diminishes.

Don’t delude yourself and think, “If I die, my kids will work it out.” Your kids will be at each other’s throats.

A succession plan involves an assessment of where the firm is going, how it’s going to get there, and who will lead. It involves a commitment to get it done, a timeframe, a marshaling of resources, and a vision of how the transition fits in with the company’s strategic plan.

You’ll need to assemble a team to get it done — you, your family, key employees, your CPA, attorney, investment advisor, insurance agent and, ideally, a psychological counselor who’s familiar with family business issues.

Once you figure out who’s going to lead, that person may have gaps in his knowledge or weaknesses that can be fixed given time and training. The owner has to back up his successor with the employees. Don’t backseat drive. Find a mentor. Bohinc mentioned Quality Service Contractors as one organization with a ready supply of mentors.

Review the plan at least annually and keep sharing it with employees so they know they have a future.

And remember that equality is not equal, Bohinc said, or, as CONTRACTOR finance columnist Irving L. Blackman has said many times, fair and equal are not the same thing. In Bohinc’s case, the boys got the plumbing company and their sister, who had no interest in being part of the business, got the family home. It’s worked out.

About the Author

Robert P. Mader

Bob Mader is the Editorial Director for Penton's mechanical systems brands, including CONTRACTOR magazine, Contracting Business and HPAC Engineering, all of which are part of Penton’s Energy and Buildings Group. He has been  with CONTRACTOR since 1984 and with Penton since 2001. His passions are helping contractors improve their businesses, saving energy and the issue of safeguarding our drinking water. He is a graduate of the University of Notre Dame with an A.B. in American Studies with a Communications Concentration.

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