Succession planning takes time, clear goals

Succession planning takes time, clear goals


At least once a week, someone would call Joel Harper and ask if he ever considered selling the family business: Harper Homes.

“The answer was always no,” he said.

Until it wasn’t.

The call in 2017 was different. “He led with his number,” recalled Harper, who was one of 12 partners in the third-generation business that owned and operated manufactured housing communities.

“He literally said, ‘I’ll pay you this,’ Harper said of the eight-figure offer. “And I said, “Well, if you’re going to pay me that, at least I owe it to myself and my partners to have that discussion.’”

Harper said the family had been talking about a succession plan for decades. “I don’t think we would have sold our business like we did if we hadn’t had all those conversations.”

While some partners underwent bigger adjustments than others when it came to the idea of the sale, Harper said the overall process that just concluded April 30 held no surprises: “Part of the reason was we did so much planning.”

Harper and his partners may be outliers. Now that he’s a consultant in his industry, he encounters many business owners who prepare for everything else about their business except what to do when they realize it’s time to decide to pass it on to a family member or key employee or sell to a third party.

“I don’t think people generally plan for it because they can’t picture that future without themselves in it,” he said.

Most people think of succession planning as passing down the family business to the next generation. The term is used sometimes to refer to sales to third parties — also called an exit strategy because of the detail that goes into the execution of the deal.

Dan Collins, partner at Harter Secrest & Emery, said business owners are often consumed with the day-to-day tasks of running their businesses or they’re worried about alienating family so they put off any thought of succession planning.

He used the analogy of a person who has lived in the same house for 50 years before finally realizing the stairs are too steep and the yard is too big.


“There’s part of you that’s ‘I’d like to move,’ but you look around and you’re just overwhelmed by the logistics. … And so, you put it off.”

Collins said the right team of professionals can help a business owner develop a plan and work through their worries.

“If you have a lawyer, if you have a CPA, if you have a wealth advisor, if you have a trusted professional advisor who can appreciate whatever it is that’s creating the stress, that’s causing the inaction, bring them in sooner rather than later. Sometimes, having that initial conversation is very cathartic … There’s comfort and there’s security in knowing that this is an overwhelming process, but now I have an ally and that ally knows what I’m feeling and appreciates the dynamic I’m dealing with.”

Collins said he starts the conversation by asking clients about their goals. Do they want to bring in a partner to help take the business to the next level? Are they looking to sell to family or trusted employee who will keep the name of the business and keep it in Rochester? If they sell to an outside buyer, will that entity take care of the employees?

“It’s really a people issue,” he said. “You start with what are you looking to do and what are you looking to get out of this. … There needs to be some self-evaluation in terms of where the client is in terms of their mindset.”

Collins said the conversation ideally should start when selling the business is in the what-if stage.

“I try very hard to say, ‘Look, if we get out in front of this and we plan proactively, it’s a lot better to have more runway than not enough … You’re likely to have more options to do this the way (you want).”

Getting a cold call can shed light on the market value of the business. That can help the business owner evaluate their options and their goals.

Mike Cooke, CPA, managing partner at DeJoy and Co., LLP, pointed out that aside from starting a business, selling it is the most important transaction of an owner’s career.

While the business owner wants an acceptable financial result, selling to a known entity versus an outsider can change the structure of the deal.


“Whether it be a family member or an employee, there’s more trust so that they have a greater belief that the company will do well because they’ve seen those people in action,” Cooke said.

“So maybe (the owner) is more amenable to structuring a deal where they take a portion of the purchase price over an extended period of time. Maybe it’s a seven-to 10-year deal instead of, the rule of thumb for a third party would be you don’t want to hold any paper for more than five to seven years.”

Taxes also play a role in how the deal is set up, Cooke said.

“When you’re dealing with a large sale, there is the consideration of how much money do I want to get at the close, because that could push me into a very high tax bracket. However, a lot of it may be capital gain. Most of the time we’re trying to structure these types of transactions to yield as much capital gain income as possible, versus ordinary income that is taxed at a higher rate. There’s positives and negatives to all of these aspects.”

Cooke said the advisory team does some handholding. “It’s important to understand their psyche, for sure,” but the focus is on the numbers and making sure there’s no seller’s remorse.

“Not every transaction closes,” he said. “So, there are instances in the early stages where they put a stop to the sale, saying no, this isn’t what I want to do. I’m going to continue to run my business or I’m going to go another way. They get the remorse before it happens and actually change the course of what they’re going to do.”

One consideration business owners may have before signing the papers is figuring out what they’ll do when they’re no longer putting in 60, 70 hours a week.

“I’ve had clients that are what I call serial entrepreneurs,” said Cooke. “They’ll sell a business, start another one, sell that business and they get smarter because now they understand how valuation works, how to pull the different levers in terms of financial metrics that drive the valuation, how to build as much value as possible, knowing when to sell, when to move on and start over again.”

Or they may find another niche, as Harper did when he took up consulting. He also does contract work delivering training courses for the New York Housing Association.

“I’m 51, which is all the more reason why I need to go do something because I’m way too young to just sit at home and not do anything,” he said.

“I met a guy on vacation one time and I, I asked him how retirement was and he said the only day I know is Sunday. And I said, why is that? He goes? It’s because the day that’s the day the big paper comes. And I said, ‘I don’t want to that guy.’”

Patti Singer is a freelance writer in Rochester. Contact her at [email protected]