Next-gen plan boosts company health, value

FAMILY TIES: Mike Moffitt, owner of Dennis Moffitt Painting in South Kingstown, is seen with his wife, Sarah, office manager. Moffitt purchased the business from his father with the help of a succession plan. / PBN PHOTO/ MICHAEL SALERNO
FAMILY TIES: Mike Moffitt, owner of Dennis Moffitt Painting in South Kingstown, is seen with his wife, Sarah, office manager. Moffitt purchased the business from his father with the help of a succession plan. / PBN PHOTO/ MICHAEL SALERNO

Mike Moffitt and his father, Dennis, began their small, family-owned commercial and residential painting company, Dennis Moffitt Painting, in 2003 as equal partners.

When his father retired in 2011, with the help of a well-executed succession plan, Mike Moffitt was able to purchase his dad’s half of the South Kingstown company and provide a 10-year pension for his parents.

Moffitt first began to think about succession planning when he saw his father had trouble with some of the more physically demanding parts of the job.

“As my dad got older, he was still painting baseboards on his hands and knees. I wanted to get him out of painter’s whites and into an office job as soon possible,” he remembered.

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Eight months prior to the father’s retirement, the pair began to put the sale in motion. Purchasing the business was a “great way to take care of my mom and dad financially. He didn’t have a big retirement package; he worked as a tradesman all his life,” said Moffitt.

Not all family-owned companies have prioritized succession planning like the Moffitts, however.

A U.S. Family Business Survey published by PricewaterhouseCoopers in January 2015 reported 73 percent of midsized, domestic, family-owned businesses lack a “documented and robust succession plan.”

In addition, the increasing age gap between current executives and the next generation is a concern to 47 percent of family members looking to inherit ownership. The survey also found two in five family-owned business executives might have trouble stepping down and 56 percent admitted to staying “longer than is optimum to ensure a smooth transition.”

David Karofsky, president & CEO of Framingham, Mass.-based Transition Consulting Group, advises family businesses to put succession plans in place when the aging generation is still active.

“Something I’ve learned from this business is that emotion trumps rationality every time,” he said.

When introducing the idea of succession planning to a family business, Karofsky advises the company to look forward and outline growth goals, future sustainability prospects and entry criteria and capabilities of younger generations.

The best piece of advice he can give to family-owned businesses that don’t have succession plans is to act now.

“Succession plans are like wills. The time for estate planning is not on the way home from the funeral,” he said.

Another common trait of family-owned businesses without succession plans is what the Pricewaterhouse-Coopers survey called “sticky baton syndrome,” when an aging executive passes on ownership but retains control of critical aspects of the business.

Blair Trippe, managing partner at Continuity Family Business Consulting in Beverly, Mass., explained why this happens.

“A lot of stakeholders began their lives sweeping those factory floors and came to have a role in their community … because of their business,” she said.

When the time comes for the aging generation to step aside, they start to question their self-esteem and worth in the family, said Trippe.

The best thing family members can do prior to an executive’s retirement, she advised, is ask them to focus on what they are “retiring to,” rather than “retiring from.

“If you don’t make plans [or] set a vision it’s very hard to get where you want to go. Uncertainty is a breeding ground for conflict,” she added.

When executed properly, she said, succession plans help develop cross-departmental accountability and track career paths.

As Webster Bank’s senior vice president and region manager for business banking, Donald Troppoli helps facilitate the sale of family-owned businesses.

When selling there are two avenues, said Troppoli: passing on a healthy business to the next generation or selling to an outside party. Succession plans play a large role in the success of a sale and the amount of capital a family can extract.

As for those next generations who choose not to inherit a family business, Troppoli said: “Generationally, it may not be as appealing, but, there are few ways you can live your life and earn wealth better than owning your own business.”

Moffitt, who has three young daughters, enjoys his work but plans to sell the business rather than pass it on to a third generation when he retires.

“I love what I do and I’ll do it for a long time, [but] … I’m building the business in order to sell and provide, hopefully, a good inheritance,” he said. •

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