Succession planning - outside the box

Actually, I mean that literally. How are you going to sell your company before you’re dead?

One model tells people to ignore the question. Nobody wants to talk about it. I certainly don’t. Still, talking about it is better than not. Here’s why.

People that ignore the succession question are admitting they may have what it takes to run a business, but they don’t have what it takes to sell one. They leave it to their estate. What comes is usually an auction, and an auction usually means your executors were not equipped to do what you could not do.

Kerry Knudsen

Kerry Knudsen

In a perfect world, your life’s work will pass to an heir. Unfortunately, the world is not perfect, and family politics cloud even the best-laid succession plans. I know a few that seem to be working, and applaud them. For the rest of us, it’s a challenge.

The MBAs of the world will tell you to sell your company at the peak of its value. Duh. So how the hell are you supposed to know the peak? For that matter, what is the “value,” whether peak or not?

I think we can all accept that our companies are not going to sell for what we think they’re worth. After all, bosses are no different in that way from employees. “If I could buy him for what I think he’s worth and sell him for what he thinks he’s worth, I could retire,” is the adage.

So, we all know this stuff. Nothing new. However, I wonder if we are missing a possible opportunity.

Forget about your daughter or nephew, for the moment. Let’s talk about Canadian uppers-and-comers. We’ll call them the “market” for an established business.

You can find studies about Canadian Generation Ys and Millennials about anywhere. Underneath the fluff, you will find they want high pay, soft jobs and guarantees right off the bat. I guess, to be honest, we wanted that, too. We just didn’t get it. Further, I doubt most of us can offer it. Production work has its rewards, but guarantees and ease are not among them. High pay can come if certain requirements are met. Customer approval comes to mind.

Having effectively wiped out two generations of Canadians, where does that leave us?

I think it’s obvious, once we do the unpleasant task of eliminating our kids. It has to be someone else.

 

Once you look “outside,” it gets interesting. We have tens of thousands of immigrants. Some are from China, some from Mexico or Central America, some from India, some from Central Asia, and so on. I know people from each of these groups, and not a one seems to be focused on ease or guarantees, and each expects high pay under conditions. More importantly, each is looking around in this new country and asking the questions, “What do I do now?” and “Where should I look for opportunity?” The promise of North America has always been wealth and a new start.

So there’s your market. Thousands of energetic and capable prospects, much like you were. What do you have to sell? Well, that’s a problem. Wood factories have two big factors to overcome in a sale. In most businesses, the value lies either in the capital investment, or in the creative value. A power plant might be an example on the one side, and a Bay Street financial firm on the other. Production facilities are big in both areas. The equipment can be a high number, alone, with some of our CNC machines exceeding $500,000 new.

On the other hand, each of our factories has the mark of its maker. Some people modify machines to do things they weren’t initially designed for. Others machine panels before break-out (or, at least, bore dowel holes). Some finish before assembly; others finish after. Some don’t finish, at all, while others walk the customer through from order to installation. You simply cannot go to school for a year and know how to integrate with an existing factory. You have to put in the effort.

To overcome the creativity hurdle, you need a prospect with a can-do attitude. To overcome the capital investment, he or she also needs money. This is tough, because creativity and money don’t always come in one person – a fact known by investors since time began. For the purposes of this note, the can-do attitude is there.

Unfortunately, you need the money. I can’t help much, there. Some cultures have resources inside their respective communities. Our own government may have funding or suggestions. For that matter, venture capital may shy away from a wood factory, but it can’t shy away from everything. Money, like people, has to work to gain value.

One obvious option is to sell on a contract with a defined pay-out. Even if the contract never matures in your lifetime, it will continue to provide an income. After that, who cares? You’re dead, anyway. Let the kids fight over it.

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