Leaving a Legacy with Your Small Business
In the 1950s, a young boy named John was enthralled by every chance to visit his best friend.
This family owned a soda pop bottling plant, which sparked a lifelong love for exotic flavors in John Nese. Years later, Nese brought soda to his family's Italian grocery store in Los Angeles, known today for its 600 soda and beer flavors from around the world.
The variety wasn't always this broad. Nese said the change came 20 years ago when independent grocers were being squeezed out by chains. One soda dealer offered a profit of $30 a pallet if Nese would streamline shelves and eliminate variety. Nese wouldn't bite:
"Nuts to that," he said. "A light bulb went off (and I said), 'You know, John, you should be happy you own your shelf space, and Pepsi doesn't, and you can sell anything you want.' So I went out and found 25 brands of little sodas."
Nese says this "freedom of choice" philosophy defines his family and his business, and customers can even make flavors of their own at the store. Rows of cane sugar syrups line the wall, along with bottles, caps, and carbonated water dispensers. "Whatever you think of, you can make!" Nese exclaimed.
This passion has fueled the Galcos' grocery for over a century, and the Galcos plan to continue this legacy.
Successfully Passing Down Your Business
Small businesses make up around 99 percent of U.S. companies and 20 percent of these are family owned.
These businesses play a crucial role in creating jobs, exporting products, and generating wealth. As Baby Boomers reach retirement, 4 million of them will be handing off their privately-owned small businesses; in the next 15 years, we will see the largest transfer ever of private business to the next generation!
What are the keys to successfully navigating these transitions?
Preparation and communication are essential. Here are a few steps businesses are taking to pave the way for a smooth handoff:
Think decades in advance.
Small business owners often wait too long to start planning a transition, and typically only half of those planning to retire have identified a successor.
Justin Goodbread, a certified financial planner and exit planning advisor says the process is especially weighty for families:
"Families will most likely also have to cope with emotional and psychological issues that surface during a generational transaction. I believe a 10-year period is needed to successfully navigate a family business transaction."
Sketch out clear successors and exit strategies.
A strong mission statement and business plan, a clear exit strategy for senior leaders, and an early commitment from successors are important hallmarks to longevity.
Build the right team.
Many businesses believe they can manage their transition independently, but this assumption is costly.
Healthy handoffs will require input from lawyers, accountants, financial advisors, business valuation experts, and a family business planner to shepherd the process. Though senior leaders may wish to gift the business ownership, experts believe financial buy-ins allow successors to get some "skin in the game," as they emotionally double-down in commitment, maturity, and vision.
Be flexible as you exchange roles and responsibilities over time.
The gap between generations requires effective communication and an organized structure for each person involved.
This should be reviewed regularly to adjust the roles or time commitment of each team member. Goodbread recommends younger successors earn more responsibility on a day-to-day basis:
"It has to be earned or merited," he says. "The problems start when a junior takes over a senior's position in the company without earning it or wanting the position."