🔒Insights from a successful family business succession plan

Entrepreneur Jim Phaneuf recently sold his Massachusetts property and casualty insurance company, Bell & Hudson, to his son, Matthew.

He represents a cohort of Baby-Boomer business owners who are looking to sell their businesses as they age and head toward retirement.

The truth is, many business owners aren't prepared to transition their companies, even as the economy moves toward a generational shift that will see nearly 80 million Americans exit the workforce over the next few decades.

Phaneuf recently agreed to an interview to share his perspectives on what it takes to complete a successful succession plan.

Here are some tips:

Never underestimate the importance of planning. It will not occur naturally. Having an exit plan does not “just come to you one day.” It is a process that addresses an owner's desires and possibilities.

Narrow your exit options. If succession is the desired result, begin the vetting process before launching the plan. It is vitally important that the family successor “gain the respect and support of the staff/team.”

Have your “ducks” in a row. As in almost every exit plan, the company must be able to be transitioned or sold.

The “deal.” Having a buyout price that is unaffordable will likely fail, creating not only financial distress but family strife. When Phaneuf purchased the agency, the deal terms were onerous, and he did not want a repeat of this scenario for his own son. Think, a “fair and reasonable value of the business.”

“The financial terms would provide me with a financial reward based upon a fair and reasonable value of the business,” Phaneuf said. “I did not want to change my standard of living post business ownership.”

Phaneuf said he was willing to take payment over an extended period because he was selling to his son.  

“Had I sold to another agency or larger agency purchasing group, the payout would have been greatly accelerated,” he said. “Had I sold to another agency or purchasing group, I'm quite sure I could have received a higher price for the business, but that was not my sole motivation.”

Consider how the transition will impact other family members. As Phaneuf contemplated his exit strategy he also needed to consider three parties:

• The company and its employees.

• His four children.

• Both himself and his wife.

Each of his children have varied interests and only one expressed interest in becoming active in the business after having worked elsewhere. Part of the consideration of choosing the eldest son was his educational background, personal abilities and willingness to learn the business.

“My son did not come to work for us directly after he completed graduate school,” he said. “He worked for a large national mortgage organization on the West Coast. I felt it was important for him to get experience working for another organization prior to working at the agency.”  

Having the agency sold to a family member was important, as many companies were interested in acquiring it, but it had to be right; right for the team, right for the family and right for all other constituents, he said.

Finally, Jim provided some quick tips for business owners to consider in the exit process:

• Start early. Begin your planning process years before you're ready to walk out the door.

• Find a qualified team of professionals to assist you — CPA, attorney and financial planner. Meet with them regularly and be totally open with them. If you're not comfortable that one or more of them are in sync with you and your plan, replace them.

• If the sale is to a family member be sure that your advisors are familiar with family and business planning issues.

• There is life after business — develop a personal plan while you are in the business and once you are separated from it.

Ed Pratesi is the managing director of UHY Advisors N.E. LLC in West Hartford, a national tax and business consulting firm.