Business Succession Planning Tips for Roofers

Business succession isn’t as simple as choosing someone who will run your roofing company after you decide to hang your contracting hat up — or an unfortunate event cuts your time as the owner of your business short. Business succession requires you to put into place a plan that will ensure the success of your company after you’ve moved on. Business succession planning is time consuming, complicated, and dependent upon your business’ structure. It is therefore wise to begin thinking of what you want to do with your business long before you will need your plan.

One of the more obvious questions that need to be answered in business succession planning in the roofing industry is who will be the successor. Do you plan on training an employee to take over the company? Is it best to keep the company in the family and to name a family member as the successor? Are there multiple owners and succession will remain within the company? The answer to this question will vary from roofing company to roofing company. For some companies, they may already have a family member who is an employee, making the decision relatively simple. Some newer companies may not have the option to appoint a family member as a successor because the family member is too young or not willing.

Business succession planning is complex, but it can still be broken down into manageable segments to help owners better understand the process. Some of the common components of business succession planning include: buy-sell agreements; gifting; merger and acquisition transactions (M&A); employee stock option plans; key-man life insurance; and management buyouts. A basic understanding of these components will give roofing contractors a good place to begin their business succession planning.

Buy-Sell Agreements

Buy-sell agreements are especially useful in a multi-partner business to ensure there is an agreed upon plan in the event a partner dies or there is a dispute. Also known as buyout agreements, these types of agreements have control over when someone can sell their interest in a business, who can buy that interest, and the amount which is paid for said interest. What triggers a buy-sell agreement varies, but typically an event such as retirement, bankruptcy, disability, or death will be the triggering event that creates an automatic offer to the current owners of the company to buyout the departing members’ interest in the company.

A good example of a buy-sell agreement is the cross-purchase agreement where owners typically purchase insurance policies on one another. Different triggering events (death, incapacitation, age, or something similar) cause the Agreement to go into effect. In a hypothetical cross-purchase agreement arrangement, Owner B, who owns 30 percent of the business, would carry insurance equal to 70 percent of the business value. This allows the remaining partners to continue business as usual without the need to fill the vacant position within the company’s ownership.

Gifting (Family Succession)

Before the recent tax overhaul, if your estate was above the $5.6 million ($11.2 million for couples) estate and gift tax exclusion, then gifting was an incredibly powerful tool. However, in 2018 the IRS announced that the 2018 federal estate and gift tax limit has been elevated to $11,180,000 for individuals and $22,360,000 for couples, which makes gifting helpful for a smaller subset of business owners. It should be noted that there are some 15 states that impose estate taxes at a lower level than the federal government, and a prudent business owner should consult a professional to see if his or her state enforces their taxes in such a manner.

Depending upon the vehicle chosen and size of your company, taxes will vary from unaffordable to little or nothing. If family succession is the vehicle chosen, states have varying amounts of money which can be gifted without being subject to a gift tax. Certain trusts also allow you as a business owner to transfer in the neighborhood of $10 million without being subject to a gift tax. The amount of taxes due when succession takes place will depend on you and your company’s finances and your state’s tax laws.

Merger and Acquisition Transaction

A merger or acquisition transaction with a competitor or company or individual is another method of maximizing the value of your company and retirement as you look to transition away from your business. Oftentimes you won’t know if the person that you are handing control of the roofing company over to is going to maximize the value of the company once you leave or if they’re going to run the business into the ground and leave your former employees out of a job in the process. By merging with or selling to a larger, proven roofing company with similar culture to your current business, an owner can assure that his or her business will continue to thrive, albeit with a different name, and continue to serve both employees and clients suitably.

Some professional business owners often encounter issues that force them to make the tough decision to sell his or her roofing company and decide that the time has come to pursue other ventures. A sale would allow him or her the freedom (and cash) to pursue other business opportunities, and if he or she so chooses, he or she could still retain a minority ownership in the business so that if the business measures fail, he or she still has a profitable asset in the form of his or her minority position.

Employee Stock Option Plans

An employee stock option plan is also an excellent method for monetizing your business outside of its traditional cash flow and often gives you time to transition out of the business over the course of several years. An employee stock option plan, also known as an ESOP, is a tool that business owners can create to incentivize current employees, all while planning for a smooth transition once the owner exits the business. In its most basic form, an owner seeking to transition out of his ownership role sells the company to a trust (the ESOP), designating key employees (hard-working managers, promising family members, etc.) as beneficiaries, and receives full payment for the business as a loan from a lender (who now controls the ESOP). Over time, the company can make tax-deductible payments to the principal on the loan, which slowly releases equity control from the ESOP to the employees who are listed as beneficiaries.

Management Buyout

A management buyout occurs when the management group of a business purchases the roofing company directly from the owner or parent company. The management group typically acquires a loan for the full value of the company, which compensates the transitioning owner for full value of the company without having to liquidate the company’s assets. The typical management buyout scenario occurs when an owner is ready to transition control to a group of committed managers, but also wants to ensure that he or she can provide for a spouse or child upon sale of the company. These acquisitions are particularly intriguing for many business owners, as they can be assured that those taking over the company have knowledge of the business and share the departing owner’s vision.

Key-Man Life Insurance

Finally, company paid key-man life insurance can be a good tool to ensure that the company can afford to redeem your share of the company upon your death. This provides cash to your heirs while helping you sleep better at night. Key man life insurance operates in a similar fashion to your run-of-the-mill life insurance policies. The company takes out a life insurance policy on a key member of the business (often an owner) and names itself as the beneficiary. The company pays the premiums on the policy, and when the owner dies, the company receives the applicable monetary disbursement. In a succession-planning context, you often see key-man life insurance policies utilized in situations where an owner is quickly aging or in poor health and wants to ensure that his family is financially stable upon his or her death, but does not necessarily want his family to take control of the company’s operations upon the owner’s death. When packaged with a management buyout, key man life insurance gives the owner the ability to do just that. It ensures a smooth transfer of control to a group of trusted employees and guaranteed compensation for the family upon the owner’s death.

As it should now be clear, business succession is necessary, time consuming, and requires a number of difficult questions to be made. If you do not have a business succession plan in effect, or you’ve come to the realization that your business succession plan isn’t as reliable as you believed, the time is now to start planning for the future of your roofing company.

About the Author: David Kronenfeld is an attorney at Cotney Construction Law who focuses his practice on a broad range of transactional matters. Cotney Construction Law is an advocate for the roofing industry and serves as General Counsel for FRSA, RT3, NWIR, TARC, TRI, WSRCA and several other industry associations. For more information, visit www.cotneycl.com.

Author’s note: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation. Regulations and laws may vary depending on your location. Consult with a licensed attorney in your area if you wish to obtain legal advice and/or counsel for a particular legal issue.

Your Organization Works Best When the Right People Are in the Right Positions

Have you ever watched a football game and thought about your business? I did that the other day. It struck me that there is great value in considering your business as if it were a football team. The basic structure is set. What matters is who occupies each position — and that includes the staff.

When we look at a football organization, we see specific positions that require certain skills. It’s pretty clear. There can be crossover where a player has skills that fit more than one position. This makes the team more flexible.

We can use the football org chart for a company as a whole, or for a department within a company. The hierarchy works just as well in either. While the structure is important, the behavior of the people in the various positions has tremendous value.

What does it take to become a Super Bowl-worthy football team? The right people have to be in each position. The leadership has to be skilled at coaching the players. Everyone has to appreciate their role as part of the whole and contribute consistently. 

The degree to which the leadership directs the team is directly related to how seasoned the team is. A young team — one that hasn’t worked together before — requires more direction and management. The more seasoned, experienced team can work with less direction and more autonomy. 

Let’s use the New England Patriots as our example. We can easily argue that the right people are in the right positions from the head coach to the assistants to the entire player roster. There is a respect throughout the organization — everyone respects everyone else’s ability to do their jobs. This respect is translated into expectations. There is consistent conversation about what is going on during a game. Ideas are discussed, plays are attempted, and adjustments are made as needed.

Sometimes the quarterback calls an audible, changing the play in the moment. Members of the defense are often communicating with their teammates about what they see on the other side of the line. Players change positions prior to the snap. 

Why does this matter to business leaders? How we successfully lead determines whether we have a Super Bowl team or not. And that is directly related to how successful our company continues to be.

There are four things that we can take from a Super Bowl football team to lead our businesses more effectively. They are referred to by the acronym PECK:

  • People
  • Empowerment
  • Communication
  • Kudos

People

Every organization works best when the right people are in the right positions. It’s about skillset and attitude. Each role has specific functions that must be completed accurately, effectively, and in a quality fashion. It’s critical for the leadership to look first at someone’s attitude, second their skill set, and third, their accomplishments. Too often, leaders promote people beyond their ability. Or they put someone in a job because they need the position filled. Those are inadequate reasons and lead to failure. 

Start from the job description. What skills does the person need to possess in order to do the job well? Match them and you are far ahead. The attitude you are looking for is one of team player, commitment, can-do; the person should be able to work independently and with little direction. To ensure you are hiring someone who really is suited to the position, consider their past performance in a similar position.

Remember — a good salesperson won’t necessarily be a good sales manager. The positions require different skills.

Empowerment

Want to get a lot out of your staff? Empower them to take ownership of their job. Many leaders think they have to micromanage every action of every employee. The truth is this — micromanaging signals a lack of trust. When you don’t trust that your employees know what to do, or will go ahead and do their jobs, you hover, monitor, and micromanage. It’s disrespectful and only causes low morale. You don’t get what you are hoping for; quite the opposite.

When you have the right people in the right positions, it’s easy to empower them to perform at their best. The right people have the right skills and know what to do. They are able to analyze a situation and adjust if necessary. They are able to work together toward a common goal. And they understand how their participation impacts the organization as a whole. 

Empowerment is a show of respect. It makes everyone’s job easier.

Communication

Communication is the key to success in any organization. The more we share information, and solicit input/feedback, the more cohesive our team will be. Everyone on the team should know and understand the goals of the organization as well as the reasons behind any initiatives. Things can change, and those changes can have an impact on how the employees do their jobs and live their lives. Sharing the “why” behind all decisions mitigates any concerns or challenges moving forward.

Along with sharing these details, seeking information, ideas, and feedback is one of the best ways to involve staff members in the actual operation of the business. It may be limited to their role in the company. The point is that open, honest, and reciprocal communication builds camaraderie and increases buy-in.

The opposite is also true and deserves mentioning. Withholding information and failing to seek input tells your people you don’t value them. After all, if you respect and care about people you communicate with them. 

Kudos

Celebrate successes, no matter how small. Acknowledge individual accomplishments. Positive feedback and reinforcement work wonders for continued commitment to the team. Considering our Super Bowl team, there’s a variety of celebration activity, from end zone celebrating to coaches patting players on the head or the back. Accomplishments are celebrated. When people feel appreciated, they excel.

Take a look at your company and ask yourself, “Is this a Super Bowl team?” If you’re not sure, it’s worth a deeper dive. Consider whether you have a PECK system in place. The good news is you can make adjustments and institute changes at any time. You can turn things around and create an environment where everyone performs at their best.

About the author: Diane Helbig is a leadership and business development advisor helping business owners around the world. She is the author of Lemonade Stand Sellingand Expert Insights,as well as the host of the “Accelerate Your Business Growth” podcast. For more information, visit www.seizethisday.co.

Fleet-tracking Software Analyzes Driver Behavior

Teletrac Navman has released Teletrac Navman DIRECTOR, fleet management software that intelligently tracks assets and collects data to meet a range of business needs and drive enhanced productivity for customers.

Teletrac Navman has released Teletrac Navman DIRECTOR, fleet management software that intelligently tracks assets and collects data to meet a range of business needs and drive enhanced productivity for customers.

Teletrac Navman has released Teletrac Navman DIRECTOR, fleet management software that intelligently tracks assets and collects data to meet a range of business needs and drive enhanced productivity for customers. Offering fuel-use tracking, messaging and routing, along with driver behavior analysis tools and concise reporting features, DIRECTOR helps businesses fine tune their strategies and reduce operating costs. Its signature safety module, called Safety Analytics, scores driver performance based on company priorities and replays unsafe driving events to aid driver training. DIRECTOR’s dashboards accumulate information to show trends that would otherwise go unseen, giving companies the insight they need to succeed.

WalletHub Small Business Study: Best and Worst Cities to Work

The personal finance social network WalletHub conducted an in-depth analysis of 2015’s Best & Worst Cities to Work for a Small Business.

In order to help job seekers consider small businesses as attractive employment prospects, WalletHub examined the small business environment within 100 of the largest U.S. metro areas across 11 key metrics. Our data set includes such metrics as net small business job growth, industry variety and earnings for small business employees.


    Best Metro Areas to Work for a Small Business      Worst Metro Areas to Work for a Small Business 
 
1
 
 
Charlotte, N.C.
 
 
91
 
 
Springfield, Mass.
 
 
2
 
 
Raleigh, N.C.
 
 
92
 
 
Tucson, Ariz.
 
 
3
 
 
Oklahoma City, Okla.
 
 
93
 
 
Augusta, Ga.
 
 
4
 
 
Austin, Texas
 
 
94
 
 
New Haven, Conn.
 
 
5
 
 
Omaha, Neb.
 
 
95
 
 
Bakersfield, Calif.
 
 
6
 
 
Nashville, Tenn.
 
 
96
 
 
Fresno, Calif.
 
 
7
 
 
Salt Lake City
 
 
97
 
 
Scranton, Penn.
 
 
8
 
 
Dallas
 
 
98
 
 
Toledo, Ohio
 
 
9
 
 
Houston
 
 
99
 
 
Stockton, Calif.
 
 
10
 
 
Boston
 
 
100
 
 
Youngstown, Ohio
 


Key stats:

  • The number of small businesses per 1,000 inhabitants is two times higher in the Miami metro area than in the Bakersfield, Calif., metro area.
  • The earnings for small business employees adjusted for cost of living are three times higher in the Houston metro area than in the Honolulu metro area.
  • The median annual income adjusted for cost of living is two times higher in the Ogden, Utah, metro area than in the McAllen, Texas, metro area.
  • The unemployment rate is four times higher in the Fresno, Calif., metro area than in the Provo, Utah, metro area.

By 2042, the Cape Coral, Fla., metro area is projected to experience the highest population increase, at 103.4 percent, and the Youngstown metro area the highest population decrease, at 11.1 percent.

Reinvention from Carolinas Roofing to Roofing

“As I’ve gotten older, I’ve come to realize that all of life is reinvention. Sometimes past and future can share the same time period. New just shows up sometimes. In show business it’s easy to understand. You can’t keep coming back with the same show. Unless you get offstage you can’t make another entrance.”

Lorne Michaels, a writer best known for producing Saturday Night Live, wrote this in Vanity Fair’s October issue, which celebrated its 100th year of publishing. Michaels knows a little something about reinvention; for 38 years, SNL has consistently been among the highest-rated late-night television programs. His words jumped out at me not only because they so appropriately explain SNL’s and Vanity Fair’s long and successful histories, but also because they are fitting for this the final issue of Carolinas Roofing.

In 2014, Carolinas Roofing will be reinventing itself as a national publication—Roofing—to remain relevant to the marketplace. Since our first issue mailed in March 2010, we’ve been approached several times to bring this magazine to a broader audience. We’ve been asked to start other regional roofing publications. A couple years ago, we seriously thought about expanding and re-branding Carolinas Roofing as an East Coast roofing magazine. Each time we crunched the numbers and discussed the ideas thoroughly but realized they didn’t make sense. This past summer, we were approached again but, this time, the idea was to make the magazine a national publication. This proposal finally made sense for every aspect of our small business and met our ultimate goal of educating the roofing industry.

In addition to a new name and a broader circulation that will include roofing contractors, architects, roof consultants, building owners and facility managers, Roofing will offer more opportunities for us to keep in touch with you, the reader. We’ll be launching a dynamic website, www.roofingmagazine.com, in January that constantly will be updated with news and product information, as well as a monthly e-newsletter to keep you informed between issues of the magazine, which will continue to mail on a bimonthly schedule.

We plan to remain true to our regional roots by offering a “Regional Report” each issue that will examine climatic challenges related to roofing in various parts of the country, including the Carolinas. And we have lots of other innovative ideas to maintain your loyal readership. We hope you opt to continue receiving the magazine. Please fill out the subscription card for Roofing and scan and email it to Publisher Barrett Hahn at barrett@roofingmagazine.com or mail it to 4711 Hope Valley Road, Box 202, Durham, NC 27707. (Subscriptions will not be duplicated.)

All of us at Carolinas Roofing would like to thank you for the past four years. We credit your engagement with the magazine for its success and, ultimately, taking us to the next level. We hope to see you when the curtain opens for our second act.

Connect to and Motivate Your Staff

A friend of mine recently lost his job because of budget cuts. He was employed at a satellite office and not a single manager who made the decision about his livelihood took the time to commute to the satellite location to share the news. Instead, he was called to a conference room where human resources personnel laid him off via speakerphone. My friend was not surprised he was let go, nor was he surprised by how it was done, considering how disconnected he believes the “worker bees” at his former corporation are from management. He had been disgruntled by the lack of communication and management’s questionable decision-making for some time.

I can attest that managing people is arguably one of the most difficult jobs in any line of work. Being a leader requires a thick skin, excellent communication skills and the ability to make tough decisions, among other talents. However, at a time when budgets are tightened and everyone is doing less with more, becoming too consumed in your own tasks and disconnecting from employees is a fatal mistake. Now is the time to embrace your team, make them feel appreciated, motivate them to take on new roles, and identify and reward their strengths. Employees who feel disconnected from what is occurring within a business will feel unappreciated and will not perform at their best. In addition, without employee buy-in, it will be difficult to enforce new programs and procedures within a company.

In this issue, we feature articles about two safety programs you should seriously consider implementing within your roofing business not only to protect your employees, but also to protect your business as a whole. For example, “Business Sense,” addresses distracted driving. I think you’ll be surprised by the broad interpretation of the law in some of the court cases mentioned within the article: Your roofing business could be liable if a worker has an accident while using a mobile device in his personal vehicle or sightseeing on a business trip. According to the author, state and federal mobile-device laws are not enough; developing and enforcing a reasonable mobile-device safety program is a major step toward minimizing your business’ liability.

In “Safety,” Michael Rich explains the Washington, D.C.-based Occupational Safety and Health Administration’s priority to require all businesses to have a written Injury and Illness Prevention Program probably within the next two years. California employers already have been operating under this requirement since 1991, providing a model you can duplicate within your business before the requirement is mandated across the country.

Establishing these programs within your business offers a wonderful opportunity to connect to and motivate your staff. You can create teams of volunteers to explore and create policies. When the teams meet, buy them lunch. When your staff goes six months without a distracted driving incident or an injury, celebrate with awards or a party. Take the time to show your employees you appreciate their efforts not only to make your business safer, but also to successfully execute their daily tasks.

In addition, consider setting aside some time on a regular basis specifically to reconnect with the “worker bees”. Join a roofing crew for a week, or answer phones in the front office. Your efforts will establish a new level of trust with your employees and, ultimately, create a better workplace. Perhaps most importantly, your staff will feel as though operational changes, like the safety programs mentioned in this issue, are happening “with” them rather than “to” them.