From Generation to Generation
Life Cycles of the Family Vending Business
By Stacy Bradshaw
Small to medium-sized businesses, those typical of the independently
owned vending operation, are the cornerstones of the Canadian economy.
Privately owned businesses account for more than 40 per cent of the GDP
and provide up to 70 per cent of the jobs created in Canada each year.
Life Cycles of the Family Vending Business
Small to medium-sized businesses, those typical of the independently owned vending operation, are the cornerstones of the Canadian economy. Privately owned businesses account for more than 40 per cent of the GDP and provide up to 70 per cent of the jobs created in Canada each year.
So why is that only three out of every 10 of these family-owned businesses survive through the second generation? And why does only one of every 10 seem to make it through the third?
According to Jeff Noble, a consultant who specializes in advising business families, it all boils down to a lack of planning. Succession and transitional planning, he told Canadian vending operators at the recent CAMA Expo in Niagara Falls, are sure-fire ways to beat the statistics.
“Succession planning doesn’t necessarily just mean preparing to pass a business on to family,” he said. Succession planning can be implemented when a business goes through any the inevitable changes, including a transfer of ownership to a third, unknown party.
David Murphy, industry consultant and owner/operator of Speedee Snack vending, facilitated the succession planning component of the 2006 CAMA educational seminar. He said vending operators should be planning for changes like selling, handing over, or retiring from their business, well before these transitions actually take place.
Aim for a three-year timeline, said Murphy. “Because people like to see at least three years of financials.”
Murphy spoke frankly about families he’s helped in the past whose lack of planning found them left with businesses that were very difficult to sell. “It took a lot of work and struggle to find a buyer for one woman who was in the vending business for over 20 years and never kept records. Not even a list of her equipment.”
When preparing a vending business to sell or pass on, one must first take an objective look at the financials; find out how much the business is actually worth. They should reassure employees that the upcoming changes won’t leave them out of a job. Murphy also stressed that all vending equipment should be secured. If equipment is used or refurbished, it must be fully operational, clean, with all the lights up and running.
“It’s like selling a house. When people buy a business, they want it in working order. They don’t want a fixer-upper,” said Murphy.
And if selling the business is the chosen path, be sure to explore all the opportunities. Typically, the bigger the company you sell to, said Murphy, the less you’re going to get.
“If the competition is doing $250,000 and you’re currently doing $100,000, your value to him is much higher than a multi-million dollar company.”
Attracting buyers of all shapes and sizes, including the local competition, could yield the best dollar possible.
If the goal is to keep the business within the family, planning is equally important, advised Noble. A fully integrated transition plan will help resolve the complications that arise from a change in leadership in the business.
Noble, who acts as a third party facilitator to the accountant, banker, and lawyers who otherwise work in isolation, said a good succession plan takes more than just money into consideration.
A lot of emotional factors come into play when a businesses changes leadership. For the head of the family – the breadwinner – to relinquish the power is very difficult, said Noble. Not wanting to give away control is an issue.
|What is a Communication Plan?|
A comprehensive transition plan should meet the objectives of all three areas of a business: the family or personal goals, the ownership objectives and the day-to-day management of the business.
The Communication Plan is a very critical component of any transition plan as it impacts all three areas of the business. A Communication Plan is vital to ensuring a voluntary sale of the business and providing the owner with a choice to sell internally or to someone outside the family business.
The objective of the Communication Plan is to create governance structures that will:
• Initiate policies around the criteria for family involvement in the business.
• Determine how family members are compensated
• Establish procedures for making decisions
• Manage differences of opinion and use them to strengthen the business
• Develop family traditions that promote the values that are the foundation of the business
• Create a purpose for the family wealth to prevent the ‘shirtsleeves to shirtsleeves’ affliction
• Plan for the transition of the human, intellectual, financial and civic capital that is critical to the ongoing success of the business
Trusted advisors such as Noble Advise work to help entrepreneurs develop a transition plan that fits with their company’s objectives.
– For more information, visit www.nobleadvice.com
“If you pass away, who will have signing authority to do payroll the next day? Someone besides you needs to know how your business works.”
Noble guides his clients through what he calls this post-transitional phase. As part of the final transition process, it is important to ensure the business can support itself and move forwards once the external consultants have exited from the project.
The plan must be unambiguous, clearly indicating the new management structure, and including a shareholder’s agreement for each of the children. Shareholder’s agreements are critical even when the siblings appear to get along well and express similar goals for the business, said Noble.
Succession is more than just a process of transferring ownership, explained Noble. It’s also a transfer of power. Deciding who can exercise that power best is never an easy decision to make. In some cases, it is left up to the stakeholders themselves, not the exiting owner. These governances must be carefully considered and overtly implemented.
Noble reiterated that, in any case, every business has to go through changes at some point; eventually every owner must exit their business, whether voluntarily or involuntarily.
In many cases, an owner who chooses to retire will require income from their business to support their retirement lifestyle. And according to Noble, only one third of business owners who say they intend to retire have actually started to make plan.
If there was one thought that Noble wanted Canadian operators to walk away from the CAMA seminar with, it was that succession is not an event.
“It’s a process,” he said.
At the very least, Noble’s hope was to get operators thinking about the future of their businesses. Or better yet, to start making a plan. o