Not that manufacturers’ representatives needed a reminder, but late in February, The New York Times began an article on the importance of succession planning this way: “Right up there with putting an aging parent in a nursing home stands the wrenching job of handing over a family business….”
Admittedly the article was not about reps but concerned a family-owned manufacturing firm in the Midwest, but the fact remains the majority of MANA members are owners of small family-owned operations. Given that fact, it’s inevitable that the time will come when the present owner had better come to grips with the fact that plans must be made for the future. Adding impetus to the need to make such plans are concerns about:
- Continuity of the business.
- Maintenance of current lines.
- Ability to attract potential lines.
- Providing a financial future for family members and employees of the rep firm.
- Creating an exit strategy for the current owner.
- Any number of tax-related concerns.
When this subject was introduced to a number of reps who have already addressed the subject, it’s interesting that the consensus in response was a reference to the axiom made popular by Nike — “Just Do It.”
Former MANA director Bill Fitch concurs when he says, “Succession planning has always been important for the rep because the owner has an ongoing need to know that the company can continue into the future. In addition, there’s a need to know that there’s value in the agency and that someone will be firmly in place to ensure there will be a continuity of income.”
Fitch, of Griggs Associates, Inc., Spartanburg, South Carolina, who has consulted on the subject of succession planning and made presentations on the subject at industry events, notes that if anything, “Succession planning is more important today than it’s ever been. People are talking more about the constant need to ‘reinvent’ themselves today. That, coupled with changes that have been building for years in the profession, make this a more important concern.”
Just Stopping Is Not an Option
Fitch continues that there are occasions when family members don’t have an interest in continuing the business and there aren’t any current employees who want to take over the business. “As a result, I’ve seen any number of people who have spent years working in this profession who continue working until one day, they just decide to stop. Sometimes they’ll take one or two of their better principals into retirement with them. They’ll use those principals to provide some form of continued income, but really don’t do much with them. The result of this is that they don’t serve their principals, themselves, their agencies or their customers well.”
Indicative of the fact that succession planning has become more important to reps and their principals is the experience of Fitch when he notes, “We actually had one of our principals ask all of their rep firms for their succession plans. Out of all of them, we were the only one that was able to comply. In addition, we’ve noticed that a lot of the principals we interview with are interested in our plans for the future.”
At this point in the conversation, Fitch raises the subject of the importance of flexibility when it comes to creating and implementing a succession plan. “As a sidelight to what I’m talking about,” he explained, “we actually were into our succession plan when things changed. We had all the contracts drawn up on how I was going to be able to exit the business when 10 months into the plan, my son decided he wanted to step away from the business. We changed our course and I’m more involved with the agency, but it’s all about being flexible.
“You can’t predict with any real accuracy what the future is going to hold for you. That’s why you’ve got to be able to alter your plans. If it turns out that the individual you sold the agency to isn’t able or willing to continue to pay you, then you’ve got to have the flexibility to take it back. Likewise, if something happens to a key person (i.e., someone is injured in an auto accident and unable to work), you’ve got to be prepared to adapt.”
To bolster his view that flexibility is key to any successful succession or exit plan, Fitch cites one example he was familiar with. “I remember the experience of one rep firm where the owner arranged for himself to retain 60 percent of the business with a junior person taking over 40 percent. Then when the owner’s plan changed and he wanted to completely leave the firm, the junior person was unwilling to take over. The owner, who was 70 years old at the time, was left with the agency and severely reduced revenue — and with no one to pass on the agency to. Whatever retirement plans he had weren’t going to work.”
Accommodating an Exit Plan
Fitch is hardly alone in his view that succession planning is critical for the rep firm. Consider Brian Olson, CPMR, The Tandem Group, Inc., Muskego, Wisconsin. According to Olson, “My brother and I began our succession plan about two years ago. I was already in the business about seven years at that time and felt I was ready for it.” He adds that perhaps a major contributor to this need to have a succession plan was the fact that one of his brothers, who worked in the agency, left at the same time the firm lost one of its major principals. “That same principal made an employment offer to my brother, and he left the firm as a result.” He adds that his father, who was one of the first CPMRs, was probably another major contributor to the need for having such a plan, given the emphasis placed on succession planning in the CPMR curriculum. “When he communicated to us his feeling that he was getting older and getting done, we realized we had better plan for the future.”
Given the fact that his brother-in-law is a contract attorney, Olson adds that getting the whole plan in writing was a fairly painless proposition.
As to what he might offer in terms of advice to his rep competitors, Olson good-naturedly says, “Given the fact that the profession we’re in today presents so many more pressures than ever before, I can’t see why any rep firm wouldn’t have such a plan in place. There’s much more to being in this business than just being a salesman. While it’s a shame there are a lot of firms out there that don’t have such plans, my personal hope is that my competitors don’t have one. That puts me in a much more desirable position.”
Speeding Up the Process
Then there’s MANA-member Bill Devereaux, CPMR, R/B Sales Corporation, Marion, Iowa. Devereaux, who was honored at this year’s NEMRA Annual Conference with Electrical Wholesaling Magazine’s GEM Rising Star Award, describes the scenario that led to his firm’s successful succession plan.
According to Devereaux, “Our need to have a succession plan carried an added urgency given the fact we didn’t implement one until my second go-around with the agency.” He continued that his stay with the agency was interrupted when he spent some time working for an electrical distributorship. “Then I came back to the agency seven years ago. It wasn’t long before Bob Benton (the agency’s owner) communicated his intention to move out of the business in just a few years. As a result, we quickly put an accelerated plan into motion.”
That plan entailed Devereaux immediately taking over as the sales manager and following that by serving as the agency’s general manager. This plan allowed him to gradually get acclimated with all aspects of the business rather than being faced with learning everything at once. “It was in the latter position as general manager that I became more involved with the business side of things, including banking and accounting.”
He continued, “We really didn’t put any time frame around how long I would serve in a given position. We didn’t say anything like 16 weeks or x-number of months, but rather once I got one side of the business under my belt, then we would move on.”
Communicating with principals also was an important part of executing the succession plan. “One year prior to Bob’s departure, we made it a point to visit with all of our key manufacturers. These visits were a great help in getting me more involved in the business and allowing Bob to exit.”
As the plan unrolled, Benton eventually decreased his time, first by half and then by a quarter. “This allowed manufacturers to keep in touch with Bob in case anything came up that they felt more comfortable dealing with him.”
Devereaux remains very positive concerning what he experienced with the execution of the succession plan. In terms of any advice he might offer to other reps as they anticipate their own exit from the business and the plans for succession, he maintains, “I think it’s very important for the individuals involved to have their own legal representation. In addition, make use of the expertise of others, whether that’s attorneys, bankers or accountants. It doesn’t hurt if those outside resources have some knowledge of what a rep is and what he does. Perhaps one of the most difficult things we as reps can encounter is attempting to explain to others what we are and what we do for a living. Their eyes seem to glaze over when we begin explaining that we don’t buy or own the products that we sell. As a result, if you can locate some outside succession-plan helpers that have knowledge of the rep profession, you’re way ahead of the game.”
After having completed one plan that allowed him to take over the agency, Devereaux explained that even at 36 years of age, he already has a plan in place for his succession. “If anything happens to me, I’ve already chosen those who will take over for me. Already I’ve had principals ask me to share my plan with them. I’m happy to do so. There’s nothing secretive about what we’re doing here.”
Working for the Future
And finally there’s MANA District 1 Director John Roba, who wrote the editorial on succession planning that appears in this issue of Agency Sales. According to Roba, Roba & Associates, Rochester, New York, “From my perspective, the reasons for having a succession plan in place can be anything from desiring continuity for the agency to planning for the unknown or various tax reasons, but perhaps the most important reason is to identify some sense of purpose. When an individual knows that they are working with their own future well-being as a goal, then that will change the way they approach their job. In my case, I’ve got my son Brian as the heir apparent. And, as I said, he knows he’s working for his own future.”
As Bill Fitch mentioned earlier, Roba also has encountered principals who are interested in the future plans of his agency. “We realized early on that we’d be crazy if we didn’t have such a plan, especially when some of our principals began asking about it. As I detailed in my editorial, we put a PowerPoint presentation together that tells them exactly what we have planned.”
Just as the other reps who were interviewed for this article, Roba concurs that it’s critical for the rep working on such a plan to have outside assistance. “This isn’t really anything you can do on your own. The best place to start is obviously with your attorney and your accountant. They’ve got the expertise to get the job done.”
And, when the job is done, Roba recalls the words of an old Alka-Seltzer commercial when he says: “After you’ve gone through everything, it’s a little bit like ‘Plop, plop, fizz, fizz, oh what a relief it is!’ If something happened to me tomorrow, I’d know that everything has been taken care of. I wouldn’t have any worries.”
Given the pace of change affecting the rep profession and business in general, it’s interesting that the comments contained in this article appear to closely mirror those that appeared in Agency Sales a few years ago when we last took at look at succession planning. In an article entitled “Completing The Exit Plan,” variables impacting any succession plan were discussed, including:
- Patience — “It’s important to take your time and get the process completed using your agenda and on your schedule.”
- Timing — “How far in advance the succession plan ought to be anticipated and then implemented can depend to a certain extent upon the way the owner plans on leaving the business. If, for instance, he or she is selling to a third party outside the business, then … the process can be concluded in as little as 12 months. If, on the other hand, the sale is to an employee or a family member, then the process can be lengthened considerably.”
- Creating a Team — “You need a ‘great’:
- Attorney
- CPA
- Banker
- Financial/investment planner
- Business broker
- Valuation specialist”
