Successfully Planning a Succession Plan

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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!

Good luck!

Succession Planning — Passing the Baton

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Eventually, every rep firm owner will leave the business. A well-thought-out succession plan is essential to all rep agencies no matter what their size and structure. If no planning is done, lawyers and the government will quickly take control. But if an agent plans an orderly transfer, he or she can reduce legal conflicts and required taxes, pull maximum personal financial returns, and see the business prosper and grow in the hands of chosen successors.

Unfortunately, as good as our members are at starting and growing businesses, I hear rep after rep dismiss the thought of succession planning as ‘not … Read the rest

There’s No Success(ion) Without a Plan

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Woody Hayes, the former Ohio State football coach, often described his disdain for the forward pass. The crusty old coach maintained that only three things can happen when you pass — and two of them are bad. Best-case scenario, the pass would be complete. But that leaves the other two — the pass could either be intercepted or incomplete.

Similar refrains are sometimes heard when reps talk about their reasons for avoiding succession planning. The reasoning is justified with comments like, “I don’t have time for that right now,” or, “I’m more intent on growing my agency than I am … Read the rest

Pioneering Revisited

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Call it a shared territory development or a pioneering fee, or just a plain old retainer, the subject we first addressed in the December 2007 issue of Agency Sales magazine won’t go away. Two MANA members in particular were quick to offer their thoughts on the views originally expressed by the rep and the consultant in that issue of the magazine.

First out of the blocks was Kurt Kroemer, CEP Sales Inc., Zionsville, Indiana, who maintains that he basically agreed with the points made by the rep, Bob Johnson, CPMR, The Growth Partnership Company, Green Village, New Jersey, and understood … Read the rest

Firm Voices in Favor of Developmental Fees

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While some of the comments in this issue of Agency Sales focus on reps gaining back-end protection when it comes to conducting pioneering work for principals, the importance of the shared territory development fee is still uppermost in the minds of many reps. For instance consider the views of the two MANA members that follow.

According to Roger Ralston, Tri-State Components, Inc., Newnan, Georgia, “We have some principals that work with us and pay a territory development fee. And with those companies, once the need for such a fee has been communicated and accepted, the result has been very positive.… Read the rest

Fueling the Engine of Sales Success

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Whether you are “Salesperson of the Year” or a rookie just starting out, you’ve probably experienced those low points: the sinking feeling when you lose a hard-fought competitive battle, the discouragement of hearing a string of customer “No’s,” or the struggle not to take a turn-down personally.

When these low moments hit, some salespeople, despite considerable talent and potential, find it difficult to pick themselves up and jump back in the game. They seem to lack the elusive quality of motivation — the ability to soar above these temporary obstacles and keep moving forward. Instead they lose momentum, avoid making … Read the rest

Executive Access

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Salespeople say, “Executives won’t pay attention. They’re indifferent and won’t take the time to see us.” Executives say, “Salespeople all sound the same. They’re well-versed about their products, but they don’t take the time to understand my business. I’ll see anyone that can show me a solid business case, but they shouldn’t whine if I won’t waste my time to ‘learn’ about their solutions.”

The result of this disconnect is that too many executives never connect valuable solutions that can make a measurable impact on their companies’ profitable growth and carry out their best positioned strategy, and the sellers end … Read the rest

Identity Theft

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No individual or company is immune to the threat of identity theft. The importance of those words was driven home when two Agency Sales readers recently reported “near misses” for having their identities stolen.

In the first case a vigilant company accountant noticed some unusual online banking activities. The agency owner and the bank were notified and a potential financial disaster was averted.

Second, an equally wary bank employee noticed what she thought were “suspicious” checks being written on an agency account.

Arguably, instances such as these are merely the tip of the iceberg, but they give credence to the … Read the rest

Relationship Evaluation is a Two-Way Street

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Whether manufacturers know it or not, their reps are constantly evaluating the profitability of their lines. This can be done formally via a structured line profitability analysis (such as that taught in the MRERF CPMR curriculum) or informally, with the rep actually measuring how much time he spends on a line and then asking himself if it’s really worth the effort. Depending upon the analysis of accumulated data, what inevitably can result is a parting of the ways.

Two reps recently reported to us the results of their decisions concerning some of their lines. According to the first rep, “Ours … Read the rest

Mind‑Stretching Technology

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Boost productivity and gain a competitive advantage.

Enhancing productivity is what much of the technology revolution is about. When you can find the right tools to boost your productivity in business, you gain a competitive advantage. When you can find tools that also stretch your mind, you have a viable advantage that leapfrogs over the competition.

Lenovo Laptops — X61 And T61

Lenovo has some laptops which continue to dazzle and provide a solid competitive advantage. You’ll find the new X61 to be very lightweight (less than 4 lbs.) and powerful. It comes with 3 USB ports, one IEEE1394, (Firewire) … Read the rest

More Tax and Financial News

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“Your most unhappy customers are your greatest source of learning.” — Bill Gates

Small Business and Work Opportunity Tax Act of 2007

This is another one of the almost countless tax acts that add layer upon layer to the already incredibly complex Internal Revenue Code, without any attempt at overall simplification. One of the major provisions is the final change (apparently) in the so-called “Kiddie Tax,” that we somewhat explained in the November 2007 issue of “Financial Fax.” Here are some more changes:

  • The favorable Section 179 write-off is generally increased to a $125,000 immediate federal tax deduction, for normally
  • Read the rest

Disaster Planning for Your Finances

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As survivors of the terrible hurricanes and tornadoes of past years can attest, disasters can have immediate and longer-term effects on personal finances, especially when people are forced to escape with little but the clothes on their backs. That’s why it’s important that any disaster preparations also include a plan for your finances.

The objective of these contingency preparations is two-fold: to provide the money and identification needed to get through the first few days of an emergency and to ensure that you have copies of the records and documentation that would help you return to a normal, financially secure … Read the rest

Tips & Tactics

The Work Never Stops — Even on Vacation

“It seems like I can never get away from work. My wife and I were recently on a vacation trip to Reno, Nevada. During the course of the plane ride, the person sitting next to me noticed I was reading Agency Sales. One thing led to another and he asked what I did for a living and what lines I represented. When I told him, he let me know that he was a manufacturer and he wondered if I thought his product might have any applications in the markets I served.… Read the rest