Good Planning is a Process - Not an Event. Sydney Commercial Plumbing Chapter 3
by John McAlister
Welcome back! This is the third chapter in our four-part series about Nancy Sydney, the president of Sydney Commercial Plumbing, and the challenges she was facing. Nancy was initially anxious about a large P.E. firm that was trying to get into this space and speaking with some of their frustrated inactive family members.
Chapter Three:
Our client engagements are a process, not an event.
The Beringer Group Fire Drill exercise is designed to uncover weaknesses and stress points in every engagement we serve. A business owner gets a chance to step back and watch how the management team and the family reacts to their unexpected passing and the execution of all of the relevant documents.
Inevitably, it takes time to uncover every problem, strategize their solutions with your team of professionals, and implement the fixes. In the case of Sydney Commercial Plumbing, there are almost 60 years of business history and nearly $4 million of revenue per week. Close to thirty documents had to be carefully read and their interrelationships analyzed to fully understand the problems before we could determine the best solutions.
We worked closely with Nancy and her advisory team to implement interim fixes to her documents and agreements while we continued working on long-term solutions. For a case of this complexity, the research and planning alone will take 8 - 12 months. If a business valuation for gifting purposes is required, an additional 90 days may be needed.
In Nancy’s case, she was unnerved to discover that many of her personal and corporate documents were considerably out of date and horrified when she discovered the potential estate tax bill at her death. In addition to a similar estate tax dilemma, her brother Steve’s health issues complicated things in another way: Nancy, Steve, and two other active shareholders controlled the majority with a combined 65% of the vote. If either Nancy or her brother were to pass away unexpectedly, their banks could require additional collateral to help pay the estate taxes. There was also no clear successor to Nancy since Steve was ill and in no position to take the reins. On a more personal level, she was upset that the non-active shareholders at 35% of the vote were so disgruntled that they wanted to look at options to sell. She certainly wasn’t at all happy with Emily’s childhood friend, George!
I reminded Nancy of her uncle’s comment that he basically owned a Pet Rock. I asked her to put herself in his shoes or Emily’s or any of the other inactives. I also let her know that it is George's job to find “cracks in the armor” with companies like Sydney so he can find a way to buy the company. In fact, she should perhaps quietly thank him for speaking with Emily, because without that spark she would not have realized all the issues that needed to be addressed nor the true complexity of her problems. She appreciated that perspective and asked TBG to bring solutions to her and the Board for consideration as quickly as possible.
Most business owners spend decades building a successful enterprise and then lose millions of dollars unnecessarily in a few crucial moments of the business life cycle.
Keeping a company and transferring it to the next generation requires very different planning than selling to a third party. Not planning for either exit puts you and your family at risk and leaves you at the mercy of opportunistic acquirers and challenging business cycles. The Beringer Group can help you to prepare now to be in a position to profit when it matters most. Call John McAlister at 678-392-4337 and let’s prepare you to maximize your return.
About the Author
John McAlister
After working with CIGNA Financial Advisors, John co-founded an advisory firm in 2000, focussing on complex family transitions. He sold his practice in 2012 to become part of TBG. He is a graduate of the University of Georgia.