Phil isn’t happy. He looks tired, older than his 64 years, and he’s barely touched his lunch. “It’s a hard situation,” he says. “This isn’t the outcome that either of us envisioned.”
Phil’s a pool builder, a very good one, and an old friend. Over lunch, he’s telling me about what happened with his general manager.
“I taught him design, construction, the business side ... everything. I was starting to position him as the face of my company, and the idea was always that he would take over when I retire,” Phil says.
But it didn’t work out that way. Through-out the years, Phil and his GM had a few friendly but vague conversations along the lines of, “Someday, when this is yours ...” Yet the hard talk, the money, timeline, and transfer-of-shares talk, never happened until recently. And once Phil’s GM understood the risk, amount of debt, and level of commitment, he got cold feet. “A lot of it was his wife,” Phil says. “She wasn’t really behind the idea, and they have to function as a family, I get that. But it means a total change of plans for me.”
Phil is smart and resourceful, but he has a real problem on his hands now. I’ve known him for 16 years and this is the first time he has seemed anything less than supremely confident.
Phil and his GM should have had a real conversation about business succession years earlier, which may not have changed the outcome, but would have given Phil more time to seek another option. Structuring an employee buyout of your company is more like a marathon than a sprint, and it’s crucial to start planning much earlier than most people think necessary.
The last of the Baby Boomers are going to retire over the next two decades, and experts say that will create the largest transfer of business assets in U.S. history. It’s going to be hard for many of these company owners, especially in remodeling, to get the price they want for their businesses, since often the equity isn’t tied to a hard asset or a reoccurring account base. In those situations, selling to employees can be a great option.
In this issue, we profile three remodeling companies that are either fully employee-owned or are moving in that direction. I don’t call them ESOPs because only one of the three actually conforms to that specific definition. Our goal was to feature different approaches to making the concept work, looking at who pays, how much, and when do they pay it. Yet not every business is a good fit for this model, so we also examine the most likely pitfalls facing an employee stock ownership plan.