Planning Ahead: What Will Happen to Your Business?
If you were to pass away unexpectedly tomorrow, what would happen to your business? When you’re ready to retire, will your business be forced to close its doors? If a giant lumber conglomerate comes calling, will you be tempted to sell?
These are not fun questions to answer, for sure, but they’re among the many that every lumberyard owner should consider, no matter how far they are into their tenure. This is especially true for family-owned businesses, whether the next generation is in place or has ventured into other industries.
Transition can take many forms, from passing along to sons and daughters, to selling to a larger entity, to an employee stock ownership plan. No matter the path, dealers who have been through it stress the importance of planning, communication, and education, along with focusing on maintaining company culture and creating or maintaining a strong foundation.
Here’s a look at how five very different family-owned dealers and distributors approached succession to help ensure growth and security of their companies well into the future.
Ann Chapman has been at the helm of Woodson Lumber since she was in her late 30s, and it was early lessons then that helped shape the company’s current plan of succession to the next generation. “I only had two and a half years in the business when my father had a stroke,” Chapman says. “I’m grateful I had people in the industry and people who had worked with my dad to help with my own indoctrination.”
For Chapman’s children, Stu, Kate, and Philip, the transition, which is still ongoing, has been much different—and much more intentional. The four are now co-owners of the seven-location, 104-year-old dealer, part of a robust and wellthought- out strategy for the company’s future.
“The goal is that whenever [my retirement] occurs it will feel seamless to our staff and our customers,” Chapman says.
Transitioning from single ownership to one of four has had its challenges, of course. Clear communication has been the vital tool from the beginning, starting with a “family constitution” that outlines many details and discussion points on subjects ranging from how family members and extended family members enter the business to pay rates and expected conduct to the long-term vision and goals for the family and the company.
“The top value for succession planning is a commitment from all parties. Even if we disagree or get frustrated, we are still committed,” Chapman says. Having the family constitution provides a firm foundation from which to draw on should disagreements or questions arise.
Twice a year, the owners gather off site for a retreat that combines both business and recreation. Spouses join in at the end, as well. They also tour other lumberyards to gain fresh insights and ideas for new operational strategies and practices.
Outside help is just as crucial. “If I didn’t have the right CPA and estate planning attorney, I’d still be struggling,” Chapman says. “In the early parts of planning, find people you really trust and who are smart, and make sure the outside accountant and attorney can work together. I feel like we have a cohesive plan; we don’t have to undo and redo.”
Chapman stresses the importance of immersing the next generation of ownership in many aspects of the business, both to uncover their strengths and to ensure they can navigate challenges that go against those strengths. Mentorship under other staff members, both in office and operations positions, was also a part of developing their skills. Those explorations will continue to help define each owner’s role moving forward.
“It’s an interesting dynamic being their mom and being their business partner,” Chapman says, who recalls how the children began learning the art of the business when they were young, discussing P&Ls around the dinner table. Two decades later, the company is on strong footing, with confidence in continued growth under its fourth generation and beyond. “I’m very fortunate that we all have chosen to work together.”
Franklin Building Supply
Franklin Building Supply’s succession journey began nearly 20 years ago, when it acquired a four-yard competitor that hadn’t planned for the next round of leadership. The owner of that company had passed away, and the previous owner came out of retirement to keep it going long enough to sell.
“We were a second-generation company at the time,” says Franklin President and CEO Rick Lierz. “We knew we didn’t want to end up in the same situation.”
The leadership began evaluating its options, from selling the company to outsiders to family ownership to an ESOP. A next-generation succession wasn’t an ideal fit, as the dealer has non-family owners in addition to Lierz. After studying the ESOP programs at other dealers, the team decided it was the right move for Franklin as well.
“Everyone has always said that the hallmark of working here is that it feels like you’re family,” Lierz says. “We have people who’ve been here for 30 to 40 years. We knew it would fit our culture, and it would provide retirement for them. It seemed like it would be perfect for us.”
The ESOP was completed just over a year ago, on March 31, 2016. The company had planned to start the ESOP in 2008, but halted the process due to the housing crash; it was a move that, while disappointing, likely saved the company, allowing it to rebuild equity while providing motivation for employees to stick around through the downturn.
For other dealers considering an ESOP, Lierz recommends learning as much about the process as possible, including talking with other companies that have been through it and leveraging the expertise of outside consultants.
“When it came time, there was a feeling of finality,” Lierz says. “I’ve owned the company for a long time, living and breathing it for 24 hours a day. I know it’s a smart move, but there’s that feeling of finality, similar for anyone who sells. But it isn’t hard to get past. Plus, I’m still here. And we’re having fun.”
Lierz remains President and CEO, and the board of directors, whose members are appointed by the ESOP trustee, still has the responsibility of running things in the best interest of the company. Lierz and others in key leadership positions also know that part of their job is to groom their replacements. “All that’s changed is the structure of who owns it,” he notes. “Before there were three bosses, there were three owners. Now I have over 400 bosses.”
That fact reveals itself subtly on a daily basis. “Everyone in the company is involved at a different emotional level,” he explains. “The thought that they are owners—that they own that stack of OSB and that truck, and that they need to take care of it—that really starts to come home to roost. The way we approach each other and our customers, that becomes truly genuine. You have to work at it, and we’re seeing it.”