Issue link: https://nebusinessmedia.uberflip.com/i/1040984
14 Hartford Business Journal • October 22, 2018 • www.HartfordBusiness.com ANATOMY OF AN EXIT Insights from a successful family business succession plan By Ed Pratesi E ntrepreneur Jim Phaneuf recently sold his Massachusetts property and casualty insurance company, Bell & Hudson, to his son, Matthew. He represents a cohort of Baby- Boomer business owners who are looking to sell their businesses as they age and head toward retirement. The truth is, many business own- ers aren't prepared to transition their companies, even as the economy moves toward a generational shift that will see nearly 80 million Americans exit the workforce over the next few decades. Phaneuf recently agreed to an interview to share his perspectives on what it takes to complete a successful succession plan. Here are some tips: Never underestimate the impor- tance of planning. It will not occur naturally. Having an exit plan does not "just come to you one day." It is a process that addresses an owner's desires and possibilities. Narrow your exit options. If suc- cession is the desired result, begin the vetting process before launching the plan. It is vitally important that the family successor "gain the respect and support of the staff/team." Have your "ducks" in a row. As in almost every exit plan, the company must be able to be transitioned or sold. The "deal." Having a buyout price that is unaffordable will likely fail, creating not only financial distress but family strife. When Phaneuf purchased the agency, the deal terms were oner- ous, and he did not want a repeat of this scenario for his own son. Think, a "fair and reasonable value of the business." "The financial terms would provide me with a financial reward based upon a fair and reasonable value of the business," Phaneuf said. "I did not want to change my standard of living post business ownership." Phaneuf said he was willing to take payment over an extended period because he was selling to his son. "Had I sold to another agency or larger agency purchasing group, the payout would have been greatly accelerated," he said. "Had I sold to another agency or purchasing group, I'm quite sure I could have received a higher price for the business, but that was not my sole motivation." Consider how the transition will impact other family members. As Pha- neuf contemplated his exit strategy he also needed to consider three parties: • The company and its employees. • His four children. • Both himself and his wife. Each of his children have varied interests and only one expressed in- terest in becoming active in the busi- ness after having worked elsewhere. Part of the consideration of choosing the eldest son was his educational background, personal abilities and willingness to learn the business. "My son did not come to work for us directly after he completed gradu- ate school," he said. "He worked for a large national mortgage organization on the West Coast. I felt it was impor- tant for him to get experience work- ing for another organization prior to working at the agency." Having the agency sold to a family member was important, as many com- panies were interested in acquiring it, but it had to be right; right for the team, right for the family and right for all other constituents, he said. Finally, Jim provided some quick tips for business owners to consider in the exit process: • Start early. Begin your planning process years before you're ready to walk out the door. • Find a qualified team of professionals to assist you — CPA, attorney and financial planner. Meet with them regularly and be totally open with them. If you're not comfortable that one or more of them are in sync with you and your plan, replace them. • If the sale is to a family member be sure that your advisors are familiar with family and business planning issues. • There is life after business — de- velop a personal plan while you are in the business and once you are separated from it. Ed Pratesi is the managing director of UHY Advisors N.E. LLC in West Hartford, a national tax and business consulting firm. EXPERTS CORNER Family businesses could have employment-law advantages By Robert G. Brody and Katherine M. Bogard F amily businesses make up the fabric of America. From an employment-law perspec- tive, family businesses often face unique issues because of the family dynamic. For instance, upper manage- ment is totally Hispanic because it is a family owned operation. Is this a de- fense to certain discrimination claims? The answer is yes. Being a family business can be good for an employ- ment-law defense. A good example of this advantage was highlighted in a 2010 case in Connecticut. The case involved a woman named Vivian Harris who was a long- time employee of a family owned lawn-care busi- ness, Long Hill Tree and Lawn Care Service Inc. In 2006, Harris' mother died and she had trouble dealing with her loss. She routinely cried at work, which impacted her performance, according to the company. On two occasions she refused to perform her duties and was sent home both times. After returning to work fol- lowing the second incident, she was discharged, the company said. Harris, who was 61, filed a discrimi- nation lawsuit arguing the company fired her because of her age. She also said the company lied about the real reason she was fired. The court found in favor of the company. Harris argued she was replaced by a younger employee, which was proof of age discrimination. The company argued the new employee was hired for a completely new job and Har- ris' tasks were actually distributed among numerous employees, includ- ing the owners. Interestingly, the owners were in their early 30s. Under normal circumstances, the age of the employees who took over Harris' responsibilities would weigh in the court's decision, but the judge didn't give it weight in this case because the employees were actually the owners of a small family business. Such deference to owners who take over a departing employee's duties is not always given. Even more damning to the company, two years before her firing, Harris heard the owners' father and founder of the business say Harris' health insur- ance was expensive. She argued this comment backed her claim that her firing was about age, not performance. In essence, she argued she needed health insurance more than a younger employee would. Again, the court favored the family. The court did not give this statement weight because the founder was not involved in the deci- sion to terminate Harris' employment. When the second generation takes over a family business the founder often continues to come to work, but with a significantly reduced role. In most other busi- nesses, the former owner would no longer be part of the business. But reality in a family owned company is different. The court recog- nized this and accepted the company's defense. Most other small businesses would not have fared so well. For family businesses and non-fam- ily businesses alike, best employment practices are key. Here, the lawn-care company was lucky: They did not have documentation to support their position. When pressed by the court the company explained they had written disciplinary notices but withheld them for fear Harris would become more upset. Fortunately, the court bought this explanation. Discipline is never pleasant, especially for close-knit family businesses. Despite this, all companies should document employee performance (both good and bad) in a timely fashion. It could save the company down the road and employees want to know where they stand. While it is not automatic, family busi- nesses often show more humanity at work and that can pay off. Here, Harris' mother had just passed away. Rather than immediately taking action, the company gave her a second chance. This action may have helped con- vince the court that these are fair people who deserve the benefit of the doubt that other companies just may not have received. Robert G. Brody is the founder and managing member of Connecticut law firm Brody and Associates LLC. Katherine M. Bogard is an associate at the firm. Ed Pratesi Robert G. Brody Katherine M. Bogard