Planning For The Future: Succession Planning for Contractors
Whether you think you’ll hand over your company to family members or sell to another contractor, you should develop a succession plan years ahead to make the transition as smooth as possible.
Keeping it within the family
Bob Champe, president of Shearer Heating A/C & Refrigeration Inc. in Washington, PA, for years has been grooming his son, Robert Champe, Jr., to one day take over the company.
“Robert actually has been messing around the office since he was 15, and he used to come on jobs when you could still have teenagers doing that,” Bob says.
Robert took to the HVAC industry early on, and while in high school he also
attended the Western Area Career & Technology Center, a vocational-technical school in Canonsburg, PA. Robert went on to complete the HVAC bachelor program at the Pennsylvania College of Technology in Williamsport.
“He then came to work and did everything, from being a laborer, to doing maintenance, to budgeting, and now he’s doing sales and learning with BDR, our financial and business coach,” Bob says. “I feel comfortable transitioning the company to him because he not only likes the service side of the business, but he also likes the business side of the business.”
Robert, now the company’s operations manager, says that serving customers’ needs is what “hooked” him to the industry. It was invaluable witnessing up-close how his father handled things on a day-to-day basis.
“When I came into the office from the field, the best thing that happened was that at one point I had my desk in my dad’s office, right beside him,” he says. “I could see how he dealt with upset customers and nice customers, how he dealt with employees, and how he dealt with the daily grind of this business – it’s 24/7.”
While Bob serves as a good role model, Robert “has a different personality and he has to put his own personality into things,” Bob says. “That’s good – we brought up a nice young man who has the same values we have on how to treat people.”
Still, it can be challenging letting go of being in charge, he says.
“I fired him twice and he quit twice,” Bob says. “Once upon a time I had that Italian temper, but I’ve cooled off and let him be.”
Bob’s advice to other parents is to “stay calm and teach – don’t get mad.”
“Just like everyone else, your kids learn from their mistakes and they’ll try not to do it again,” he says. “In the last year, I don’t think we’ve even raised our voices to each other.”
Bob and his wife, Denise, own the company, and next year when Bob turns 65, the couple will start gifting their stock to Robert, fully transitioning ownership within the next three to four years.
“But I’m not going to completely go away — I’ll just work one or two days a week,” Bob says. “I’ve been working since I was 16 and there’s only so much golf you can play.”
Brian Stack last year replaced his father Andy as president of Stack Heating, Cooling and Electric in Avon, OH.
“My dad retired last year, which means that he doesn’t work seven days a week anymore – just until noon on weekdays,” Stack says. “This has made it a very easy transition for us.”
Stack and his three siblings all work in the business, but only two of them have ownership in the company.
“We were never pushed by my dad and mom to take over – they wanted us to take our own path and make our own decisions, but we all decided to get into the business anyway,” he says. “We never took it for granted that we could just get by without working because we were family – our parents told us that if we didn’t fulfill our roles, we would not have a job.”
In 2018, the parents made a change in the business structure to account for how the succession impacts the company’s tax structure – the third time the succession plan was modified.
“I think it’s important to review your plan occasionally to make sure it still works for you,” Stack says. “My dad is still part owner, and my brother and I are part owners. So from a tax standpoint, there was not actually a change in the business ownership. We set it up with our accountant and attorney that when dad dies, his shares come over to our side of the business, at very little cost to us.”
Selling the company to non-family
When Larry Taylor bought AirRite Air Conditioning in Fort Worth in 1990, he never expected to have any family members to work in the company or take over the company – “I bought it with the intention to sell it. To do that, I aimed to improve the company’s value.”
Taylor expanded AirRite’s business model from focusing primarily on new residential and commercial construction, to focusing on residential service, light commercial service, and replacements. The company also began offering service contracts to all customers and introduced home performance services.
Coming from a corporate management background after first serving as a service technician, Taylor enhanced AirRite’s training programs and established reproducible business processes that were more efficient. These improvements enabled him to focus on growth opportunities, both organically and through acquisitions.
Taylor also increased his involvement in community and business organizations, including serving on the board of the local Building Owners and Managers Association and working on BOMA’s service projects, such as the local Samaritan House for cancer patients.
“When selling an air conditioning company that is primarily a residential and light commercial service-based company, being involved in your community projects helps further build goodwill, reputation, and credibility,” he says.
When determining the ultimate valuation of the company including the goodwill, it helped that Taylor was involved in ACCA programs that enabled him to establish valuable connections with consultants and other experts nationwide. It also helped that he had bought a number of companies himself, so when it came time to sell AirRite, Taylor was able to come to an easy agreement with the buyer.
“If you have intentions to sell your company, you have to be planning all along,” he says. “If I hadn’t maximized the performance and the value of my company to get a good price for it, then I was cheating both myself and my family.”
Stan Johnson, Jr. used to own and operate Stan’s Heating and Air Conditioning Inc., an Austin, TX, company that his dad founded in 1954. The son sold it in 2011, and it’s since been sold again – though it’s still under the same name.
Was handing over the business to a family member ever a consideration?
“One child was interested, but by the time I wanted to sell, he had worked in another field and was making a really good living,” Johnson says. “It would have cost him too much money to leave that career and take over my business.”
If contractors want their children to come into the business, they should start talking about it with their kids very early.
“I wanted all of my kids to get an education and pursue what interested them, so I didn’t direct them very much,” he says. “They all have professional careers they like and for our situation, I’m glad I didn’t direct them or force them to go into the heating and air conditioning industry.”
As Johnson was nearing retirement, he was approached by a man who had a potential partner and was interested in buying the business. He talked to three other potential buyers, but decided to sell to the first party, who together had previously owned a business and believed in running a business the same way as Johnson did.
“Even though they weren’t offering the highest price, I thought they would best be able to maintain my company’s good reputation in the marketplace,” he says. “I also thought they would give the people who were working for me a positive opportunity to increase their earnings.”
Before a contractor gets to a place in life that they might want or need to leave the business, they need to think in advance of what they want to do. “There needs to be a plan that fulfills the contractor’s goals,” Johnson says. “Is it to monetize the business or is it a legacy issue or is it something else? My business is a legacy for me — my name and my father’s name is still on it.”
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