Does your business have a succession plan?

“Exit planning is good business planning,” said Josh Huseman, vice president of business owner advisory services at FNBO. 

The Longmont Chamber of Commerce and FNBO Bank teamed up to take a look at two of Longmont’s successful business transitions. 

Longmont Florist is a third-generation family-run business. Nate Golter spent many days in his youth helping around the floral shop. He eventually went off to college to study engineering and math and became a high school teacher. As he climbed the administrative ladder, he realized that much of the work he was doing could be translated back to running his family’s floral shop. 

He approached his parents and began the transition. Golter expected the transition to be quick, but his parents made him slow down. Golter worked in the shop in various managerial positions for three years before diving into the negotiations of the transfer. Since it happened during the pandemic, the process took another two years. 

In the end, the family valued their relationships above all else so they brought in outside help from an accountant and a lawyer. Golter said some businesses may also include outside financing agencies or mediators to help with the process. 

Golter took over the business after the family decided on a fair price and transition plan. He hopes that one of his children will want to take it over someday, however, he prefers they follow their own passions. In the meantime, he plans to teach his children the value of hard work and some of the business administrative aspects along the way. 

Sarah Morgan, owner of Martini’s Bistro, had worked in the restaurant industry for years before she realized it was a career she wanted to pursue. During the pandemic, she decided to purchase the restaurant when the previous owners decided to retire. Her journey through the process was accelerated to a little over a year. 

While she was negotiating with the owners about the restaurant she learned that the value of the restaurant is not always the same as an owner thinks it should be. She said a powerful tool is to rely on the value the banks assess the business to be. She advises people to not get emotionally invested until the deal closes because business sales are not easy.

Morgan has already started her own succession plan. She said her daughter — who is 8 years old — has claimed the title already. Morgan believes her daughter can do it but doesn’t her to feel like it is the only option for her future. In the meantime, Morgan is working on replacing herself as general manager.

Huseman said there are three things to consider when building a business succession plan, the timeline for creating the plan, building transferable value and the factors that contribute to the overall price.

Building a succession plan can take time to iron out the details or even decide what the owner wants the plan to look like. Huseman suggests making one decision and having one conversation about that decision as the first step. This could include talking to an employee who might be a fit for taking over. 

Transferable value in a company is important to make sure the new owner has something worth investing in. Huseman said that it is equally important for owners to build themselves out of the company because the more dependent the business is on the owner, the less valuable it is to someone else. 

Another early step to building a successful succession plan is to understand the value of the business early on and determine if that value will be enough to fund the owner’s retirement or post-sale plans. For some owners, gaps may remain and the earlier the assessment is completed, the earlier the owner can accommodate those gaps, Huseman said.