BackRetirement reckoner
Make sure you are financially secure and your children have the skills to smoothly take over
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Retiring is challenging for almost everyone. But if you’re a small-business owner, preparing to hand your company to your children can create an even bigger knot of anxiety—worries about financial security, the legacy of your life’s work and the prospects for your offspring. The process can touch everything from spreadsheet-driven company valuations to awkward talks about your children’s limitations.
“One of the first questions you have to ask yourself is, ‘Do I have financial security if my kids run this business into the ground?’" says Kelly A. LeCouvie, a Toronto, Canada, based consultant with the Family Business Consulting Group. “It’s a possibility. You may have enormous faith in your children, and often that perception reflects reality, but sometimes it doesn’t."
For people who want their children to take over their businesses, consultants like LeCouvie stress the importance of planning. Adequate time enables smooth succession and lets people compensate for deficits. Perhaps the parent needs a few years to put more money aside or the child needs to get more training or to meet more customers.
Too often, small-business owners don’t plan and get blindsided, says Matt R. Allen, a professor of entrepreneurship at Babson College outside Boston, US. “Everybody thinks they’re going to live forever, and then a heart attack comes unexpectedly and nobody’s prepared," he says.
Few people, of course, have the time or temperament to put into effect the sort of elaborate five- or 10-year plan that a consultant might create. Plus, chance can play a role in succession as it does in so much of life.
Janet Briaud, founder of Briaud Financial Advisors in College Station, Texas, US, says she partly lucked into a succession plan. She had built her company, which specializes in advising college professors, over two decades. Briaud, who is 63, wasn’t ready to retire but had begun to wonder what might happen to her clients when she did. She didn’t foresee her daughter, Natalie Pine, coming home after she left to attend Rice University, vowing to build a big-city career somewhere else. Natalie and her husband, Roger, did that in London, UK, where she worked in finance, and he in energy consulting.
About eight years ago, Natalie, 34, defied that expectation by announcing not only that she and her husband, 36, were moving back to Texas but that she also wanted to work with her mother. Natalie soon became chief operating officer, handling tasks like upgrading the website and improving customer service and internal processes. A couple of years later, Roger, too, became a financial planner and joined the company.
Another surprise came in 2010, when the Pines offered to buy Briaud out.
“I wasn’t ready," she recalls. “So Roger said, ‘How about 60%?’ I wasn’t ready for that either. But I talked to my husband, and he said, ‘Isn’t this what you really want?’ I came back to them and said, ‘Let’s do 50/50.’"
The Pines agreed to run the business and let Briaud focus on overseeing client investments.
By not setting a date for Briaud’s retirement, the trio did not follow a common bit of expert advice. Allen of Babson says a parent who hangs around might stymie a business because clients and employees don’t know who’s really in charge.
“If possible, there should be a specific date," he says.
Although consultants recommend orderly successions, handovers are often more casual.
Craig W. Sheppard, owner of Sheppard’s, a dealer and servicer of orchard and farm equipment in Hood River, Oregon, US, says that he and his son, Ben, had improvised deciding who does what since Ben joined the business in 2006.
“We’re not that formal about it," he says. “As time goes on, Ben takes on more duties. It’s been evolutionary."
Ben, 37, is more skilled with computers, so he handles those and manages the scheduling of the service crew. His father, 61, oversees the rest of the back office. Both of them do sales, with the elder Sheppard visiting the customers he has known for decades; a lot of the local orchards—the region is known for its pears—are family-owned too.
If all goes as planned, the younger Sheppard will take over a business started by his great-grandfather. Craig bought it from his father over several years and says he envisions his son doing the same.
©2014/The New York Times
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