Succession Plan. The words inherently imply success, right?
In my own rep experience, and in consulting to many reps over the course of the past 10+ years on the topic of successfully selling a rep firm, I’ve found that less than half of succession plans succeed. My guess is that the number is closer to one-in-three plans that actually unfold as intended, and proceed through the term with success. Some make it through the process to the end, but find themselves plagued with turmoil, miscommunications and strained relationships, especially when the plan involves good friends or family members. The best defense against any of these misgivings is prevention — I recommend that you start early, and make a plan to plan.
Valuation — the starting point.
A good exit strategy requires significant efforts and involvement by all prospective parties, including the owner (seller), the buyer (heir apparent or employee) and a solid panel of advisors (an accountant, an attorney, rep friends, your association, etc.). This is the “starting point.” Plans always have a better chance of succeeding when the affected parties are fully engaged from the very first step. This provides increased directional clarity and comfort with timelines, and returns the focus to the important daily task of selling.
Structuring the deal — timing, payments and contingency specifics.
The timing of the plan is critical. Even if you are not going to start the plan for another 10 years (with the intention of retiring in 15), create it now and review, adapt and revise it every year. One of the biggest challenges of the process is managing the cash flow and simultaneously getting the fair value out of the rep company. Cash flow becomes an issue when the owner has fulfilled the day-to-day obligations and leaves the business. He continues to receive payments as part of the structure of the deal, but is no longer an active source of sales income. Rep firm operations must continue to run smoothly and quickly adjust to this change in cash flow.
Making it work — with employees of the rep firm, with principals, with everyone.
Obviously there are many potential downfalls when executing a plan of this nature. Another challenge to the process arises if the owner constructs a plan without considering input from the heir apparent buyer. In this ‘bossman’ scenario, the owner assumes that the prospective buyer will readily accept the terms and conditions put forth, basically because the owner has always run the rep firm, and always knows the best solution! Let this be a reminder to involve the buyer early on — it allows you to solicit opinions and positions, and to gage their willingness to create an equitable plan.
Once the plan is triggered and the owner is about five years out (+/-) from planned retirement, it’s important to begin communicating the plan externally. Be sure to communicate plan details to your manufacturers; they are often eager to see that you have a well-structured plan in place, and that it covers a specific time period for both the continuation of the rep firm and for their sales success. As part of your external plan communication, be sure to elevate the heir apparent buyer’s position and visibility within the sales environment; the prospective buyer should move into a more prominent decision-making roll.
A plan that is well done and done well-in-advance will increase your probability of success in meeting everyone’s needs. If you don’t have a plan yet, you might want to take some time out this weekend and jot down a few ideas. Don’t forget to consult with your rep friends, especially with those who are also considering a succession plan or who have a plan in place. Of particular value are those rep friends who have completed a succession of their rep firm. Be sure to consult with rep knowledgeable attorneys and accountants, and don’t hesitate to call MANA for help. After all, we want to see you relaxed and sipping piña coladas on a Caribbean beach — not worrying about the battery charge on the portable defibrillator in the top drawer of your desk!