Succession planning three ways

By Emma Peterson. 

Explore how early planning, clear processes and documentation prepare your business for its next chapter. 

One of the hardest moments for any business owner or entrepreneur to properly prepare for is when it’s time to take a step back and pass the company on to the next leader. But it is a moment that comes for all of us, and one that you want to be prepared for. When you’ve put years or even decades of work into a company, it becomes your legacy, and that should be protected through proper preparations. To talk about the process of leadership transitions, Heidi J. Ellsworth, Megan Ellsworth and John Kenney (CEO of Cotney Consulting Group) hosted an Affinity Webinar to discuss navigating different forms of succession planning.  

Passing the torch on to family 

Many roofing companies become part of family legacies as they are passed down from parent to child. This is often a great way to make sure your business is cared for by someone who is as invested in its success as you are. But this succession method also comes with some challenges. John explained:  

There’s a saying about the first generation having success, and every generation after that has a higher chance of failure. Why? Oftentimes when companies are passed through families, going from that first to second, or second to third generation, the processes, procedures and understandings aren’t passed down as well. 

What John is pointing out is that, in these family hand-offs, the plan is often to simply hand the company to the next generation, and plans do not extend beyond that. In order to set that next generation up for success, you need to plan beyond who gets the business. As John put it, “There is a lot of planning and even financial type of setting up to do, if you want to set them up for success. At the end of the day, if everything is not in order, the succession's not going to work.”   

Making a sale 

Another form of succession that we see frequently in the roofing industry is sales. This can be to another contractor or private equity. And the main thing to know about this path is that your company might not look the same after the sale. John explained, “Sales happen for two reasons. One is they're buying you out because they're going to flip you and get rid of you, and they don't care. So, you have to think hard about if that’s what you want. Or they come in as a partner.” 

If you want the latter, for your company to become partner of the buyers’ business, there is some groundwork that must be done to prepare for sale. John gave some examples, explaining, “They are going to deep dive into what your current org chart looks like, management structure, what your bench strength looks like and how you have planned for the next 5 to 10 year.” By keeping your records organized and clear, you can show them why your business is worth investing in and keeping as a partner, rather than being flipped completely. 

Navigating a merger 

And last but not least, there are mergers and strategic partnerships. This form of succession has been all over the headlines across the industry. While it may sound fancy or complex, John broke it down, saying, “When you're looking at mergers and strategic partnerships, they absolutely become no different than bringing in a family member. The only difference is it's a family member with money.” 

Why does he say that? Similar to older generations preparing to hand off to a younger family member, the most important part of planning for a merger succession is making sure that structures and processes are established and clear. John explained:  

The company is just the structure, and that structure should be able to go on if you've got it built correctly to put different people in different seats as time progresses...And if you don’t have that in place, your absolute sales price, your buyout price, your stock shares or whatever the deal may be, is going to be lower.”  

Overall advice 

You might have started to notice a pattern in John’s advice – succession planning is all about clear organization. And that’s because that is the key to any successful handoff, whether it's to a family member, another contractor or an investor. As John elaborated:  

The first place to start is to look at yourself and your company. You should start building your initial succession plan years before you want to exit. Within 6 month of starting to plan, you should have something that you're ready to start to kick around, and within a year you should know what the goals are and how to get there. From there, you're having quarterly or biannual review meetings, documenting the growth within the company and adjusting the plan to that.  

With this type of strategy, you can be assured that no matter whether you are looking at a family handover, a sale or a merger, you will have set up your roofing company for succession success.  

Watch the whole webinar to learn more about succession planning.