How to Plan Your Exit

Sooner or later everyone retires. It is a simple fact of life. Ensuring that a remodeling business survives beyond this inevitability has become an important goal for many remodelers — whether they plan to retire next year, or 10 years down the road.

But in planning a succession, tough questions soon arise. Who will take over the company? Will there be enough money from the transaction to comfortably live on? Will a family member or employee purchase the company from you or will you have to sell it to an outsider? All of these questions can be managed with a well thought-out succession plan that lays out a smooth transition between you and the new owner(s).

Succession planning is a process, not a horse-race to the finish line, and should be carefully reviewed by the owner and a team of qualified financial, accounting and legal experts.

Within the remodeling industry the succession planning process can present special challanges as most successful remodeling companies rely on long-term, personal relationships — with employees, trade contractors and customers. How to maintain these relationships and keep your company’s hard-earned reputation at a high level is another important factor in this process. Addressing these considerations depends largely on the intended ownership. Different succession plans flow from the initial decision to a) pass on the business to a family member, b) sell the business to a current employee or multiple employees or c) put your company up for sale to the highest bidder.

All in the Family
According to Charles Schrader (see sidebar on pg. 19), 95 percent of all construction companies are family owned and only three out of 10 will succeed to the second generation. Among the 30 percent of companies that successfully pass to the next generation is Hobbs, Inc., of New Canaan, Conn.

Scott Hobbs is proudly the third generation to take over this full-service remodeling company. Hobbs Inc. has a unique way of phasing out the previous generation, a credit to a well-written succession recipe.

“Our strategy is that the current owner can work as long as they choose, however, when they decide to leave — they must completely leave,” explains Hobbs. “When the senior member chooses to stay around, they typically have a harder time letting go and this muddies the water for the next owner.”

This tactic has made the transition between two generations in the Hobbs family quite simple.

Starting the company in 1954, Theodore Hobbs began like many others — picking up general remodeling jobs around town and creating key business relationships along the way. These relationships, be it with employees, architects or clients, were his basis for business success and also ones that needed to be passed on to the next owner.

“It is incredibly important for the younger generation to establish their own relationships,” says Hobbs. “As soon as you have an idea that you might be the future of the company start developing these long-lasting relationships and get to know the company as much as you can — soak up as much information as you can.”

This ranges from the financials of the company to the ethics and procedures the company follows.

Dan Klappa, CR, second generation of JDJ Builders of Mukwonago, Wis., got to know his father’s company very well and when it was his turn to sit in the owner’s chair, he made a few changes to the way things were run in the past.

“My father had an ‘old school’ approach to the way he ran the business and when I came in,” says Dan Klappa. “I incorporated additional structure into many of the in-place procedures.”

Klappa, who took over the company at 27, allowed his dad to still be a big part of the business. “I love that my dad is still around and helping out,” says Klappa. “Although he does know that it’s my company now and I make the calls.”