Succession Planning: Keeping it in the Family

9.7.22 – SIW – Kelly Bond

An inside look at one security business’s successful transition of ownership, and best practices for succession planning for all integrators

This article originally appeared in the September 2022 issue of Security Business magazine. When sharing, don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter.

Many security integration business owners run their company for many years with the idea that one of their children will have enough interest to step in to run the business upon the owner’s retirement. The children begin working in the business as a teenager through most summers and holidays learning the ropes. They are willing to climb into attics and sit through certification classes. They eventually go on to college and get a business degree with the plan of coming back home and taking over the family security business.

It all seems pretty simple; however, often the best-laid plans turn out much like these scenarios:

1. You are astonished to learn that none of your kids are interested in the business. They have aspirations of their own, and as hard as it may be to realize that all of your plans have come to a screeching halt, you encourage them to do something they love.

2. One of your kids joins the business and instead of picturing yourself relaxing, you feel that you have now taken on a major project and may never be able to retire.

3. You have employees that would like to purchase the business and you begin working with them to make that a reality.

In the end, no matter what your succession plans are, you need to plan your exit early and be ready to pivot if needed.

Case In Point: Succession from Parent to Son

Former police detective W. William “Bill” Schmidt founded Ohio-based Schmidt Security Pro 46-years ago. His two children started showing interest in the business early on, and he put together an exit strategy to take him to retirement. Today, his son Brian Schmidt is the current President of Schmidt Security Pro and Schmidt Fire.

I asked Brian how long it took to make the complete the succession transition from his parents’ company to him. “The process of determining the details of how the transition would take place took a couple of years, because we were not sure of the best strategy that would meet everyone’s needs,” Brian Schmidt explains. “I also think that my parents weren’t quite ready to part with ownership of the business – it required a level of patience on my part to make sure they felt comfortable and the time was right for them.”

Schmidt adds that once they finalized the details and aspects of the succession that they all felt were important, they met with accountants and lawyers and put a plan in writing that made sense. At that point, the actual transaction took about 30 days, but it wasn’t without its challenges.

The first major hurdle for Schmidt was the combination of running the actual day-to-day activities of the business, while also developing

 and working through the many “what-if” scenarios when an ownership transition happens. These scenarios involve many stakeholders – including potential buyers, employees, customers, vendors and more.

“There are many things that need to be considered before a transaction takes place, and ideally, a plan gets put together that ends up as a win for everyone involved,” Schmidt says.

Another challenge involved the treatment of other children when one child is afforded the opportunity to buy the business when the other is not. What is fair? This can be a tough scenario for both the seller (parents) and buyer (child) to work through.

“My sister worked with the business for a period of time approximately 16 years ago – she ran our marketing department and did a great job before deciding to become a full-time mother to what ended up being four awesome kids and is a devoted wife to her wonderful husband,” Schmidt says.

Peer Advice

Schmidt says he would encourage other security businesses going through a similar process to be sure to fully understand what the needs of the exiting parent(s) are and what is most important to them. Is it a certain dollar amount in a lump sum? Is it a certain amount over time? Do they want to retain ownership of the property and collect rent? Is it about maximizing profit at the time of the sale? Is it less about the money and more about maintaining a certain company culture and/or level of local jobs after the seller is gone? Something else?

“If the [children] can align with the [parent]’s needs, I feel a successful transaction is much more likely,” Schmidt says. “I would suggest getting these details worked out fully before bringing in accountants and lawyers; then see if the accountants and lawyers can get a deal written up based on the framework that both sides put together. This may be different advice than what an accountant or attorney would provide, but I think it provides a clear path to move forward and saves everyone a lot of time and money in the long run.”

Succession Planning Best Practices

The fact is, at some point in their career, a business owner will begin to focus on what will happen with the business when they are ready to retire. An owner should not let succession or business sale plans creep up on them. It should not matter whether or not you are planning to retire in the next 3-5 years, or if you are targeting a general market sale in 10 years, or even if you plan to run your business until you have to be carried out – you should always run it and prepare as if you are going to sell tomorrow.

When starting the process, here are five steps that, if followed closely, will help the success of the transition:

1. Plan accordingly: Think the process all the way through and be proactive in planning at least 3-5 years before you plan to sell or retire.

2. Identify your successor(s): Make sure that they desire and possess the ability to take over the business.

3. Prepare your successor(s): Ensure that your successor(s) is prepared to run the business. Set up meetings with key resources, such as the company’s CPA, attorney, insurance providers, manufacturers, central stations, etc., and begin to help the incoming owner forge good relationships. Additionally, set professional development efforts and milestones.

4. Test it: Do several trial runs of your plan and work through any missteps.

5. Stick to the plan: Whether the transaction is a succession plan or a standard market sale, it is important to set up a clear point in the timeline in which the “seller” will fully exit the business – even if the “new owner” may be hitting some road bumps. It seems that greater challenges and issues may result if the new company president is not allowed to fully run the business, come what may.

Kelly Bond is a Partner at Davis Mergers & Acquisitions Group, a security industry-focused business brokerage. Visit www.graybeardsrus.com for more information.