Kitchen & Bath Design News

AUG 2018

Kitchen & Bath Design News is the industry's leading business, design and product resource for the kitchen and bath trade.

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IF YOU DON'T show up for work one day, the question of "Who's in charge here?" is going to need to be answered. Most of us prob- ably started our businesses several years ago and have just assumed that we would always be there to run things. But eventually, there will come a day when someone else will have to take over your responsibilities. We all think to ourselves that we will get to that planning "someday." It's important to set aside some time to be- gin to pull together a plan, particularly for the possibility that your departure could be sudden and unexpected. There are several critical areas that should be considered when you prepare a plan for the continuation of your business. Much depends on the structure of the organization you have in place now, so the first thing to do is make an assessment of this. Once you have this invento- ry in hand, you can develop a plan to fill in the holes that are indicated. Finally, it's important to begin to develop an exit plan for the longer term. A CURRENT ASSESSMENT Begin your assessment by asking a few simple questions: • If I did not come to work today, what would happen and who would be in charge? • What would the impact be to our sales volume without my participation? • Will production on our projects contin- ue without my direct involvement? • Are there sufficient cash reserves to get my company through the initial adjustment period? • After the initial adjustment period, can/should my business continue on without me? As mentioned above, the answer to the first question will depend on the size and structure of your business. The majority of those in the remodeling business have relatively small or- ganizations, with less than a dozen employees and no middle management to speak of. It is typical that each employee has specific respon- sibilities, and the supervision and coordination falls to you, the owner. In larger organizations, there are usually mid-level managers who han- dle the day-to-day decision making. If your business is a partnership, the answer normally is that the surviving partner would step into your responsibilities or hire someone capable of handling them. If your business partner is also your spouse, this will provide a unique set of challenges for your survival plan. We won't go into these scenarios here, but there should be some thought given to how they might play out. We will focus on the smaller organization where the owner's absence will have the greatest impact. One of the most important steps that can be taken with any business is to establish systems and procedures that your staff and em- ployees will follow to keep business functioning today without your direct intervention. Properly envisioned and implemented, such a system will keep the organization operating without a successor for a reasonable p eriod of time. It's likely that there's someone in your orga- nization, regardless of how small it is, who you look to as your "assistant," even if there is no one with that specific designation. You should produce a written "disaster" plan that actually designates who is in charge of operations if you are not able to be there. This and the policies and procedures should allow your business to function for a short period of time. In the longer run, there will be decisions that will have to be made that are "ownership" type decisions. Assuming that your absence is permanent, the person designated as operation- ally in charge will have to consult with whoever is speaking for ownership. If this ownership person is not going to be involved in the day-to- day operations, then the person who you have designated as in charge of operations will have to work out a relationship with the ownership representative. Your disaster plan should define whether the business will continue in this fash- ion or have a plan for liquidation or sale of the business. It's important to identify the person who will represent ownership in your absence. One of the most immediate needs your business will have without you is operating cash. You should expect employees, suppliers and sub-contractors to be concerned about the business' ability to meet its obligations. If you do not have adequate cash reserves to pay all of the bills for one month, you should arrange for a line of credit that will remain in force even without you in the picture. The next issue that should be addressed is the short-term viability of the business. It's essential to retain critical employees and staff if the business is to continue. It will be necessary to have your designated "in charge" person meet with the entire staff and lay out the plans for the future to reduce the uncertainty that is sure to prevail. AN ORDERLY DEPARTURE At some point, some thought should be given to how you will ultimately exit your business. If you have family members in your business who are planning to continue it after you leave, then that makes such exit/succession planning somewhat easier. It does not, however, make it unnecessary. How any transition is to work should not be left to crisis mode. It will be much easier to develop a strategy for an unplanned exit if there's a plan in place for your ultimate (planned) exit from your busi- ness. Like the disaster plan discussed above, exit plans have a way of being put off indefinite- ly. Exit plans, or succession plans, require that one acknowledges that they will not be around forever and have a desire to leave their busi- ness under their own power and with enough resources to enjoy that next phase of their life. The first step is to pick a date for that exit and then start planning for it. In all likelihood, it will normally take several years to plan and implement an exit. Once a date has been estab- lished, the next step is to identify a successor. Depending on the direction this succession plan takes, there are numerous financial con- siderations that will have to be worked out. A sale of the business to a competitor will usually not involve great financing difficulties, while the sale to an employee will likely require the business to generate the cash flow to buy you out. Transfer of the business to a family mem- ber involves numerous emotional issues along with the financing ones. Written and discussed exit/disaster plans will allow your business, your family and your employees to deal with the possibility of your not being there without it becoming a crisis. ▪ " Written and discussed exit/disaster plans will allow your business, your family and your employees to deal with the possibility of your not being there without it becoming a crisis." Read past columns and features and send us your comments about this article and others at Planning for the Succession of Your Firm BRUCE KELLERAN, CKD, CPA 30 Kitchen & Bath Design News • August 2018 BUSINESS MANAGEMENT

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