Scott Michaletz took over his father’s insurance business, and as he got nearer to retirement, he and his wife, Gail, wanted a strong plan in place for their two sons, Jon and Matt, to take the reins of Kato Insurance.

“I’m very proud of them. They’re both smarter than I am. They enjoy what they do and we’re fortunate to have a good staff,” Michaletz said.

When he turned 60 three years ago, he and Gail put a plan in place to have their sons acquire a certain percentage of the business over several years.

“In a few years they’ll get another percentage of it and when I’m 70 they will acquire the agency at a fair price. They’ll pay us off over 10 years. That will be a big chunk of our retirement, of course,” he said.

“This is our plan as it is today and as with any plan it is subject to change. We will continue to make adjustments as the future presents itself.”

He thinks a good plan will help the future of the business.

“If you set a good price and they take over, they have every incentive to grow it. Each year we give them more responsibilities and Gail and I slip out of here a little more often.”

Jon and Matt have been at the agency for several years and work with the agency’s clients, insurance companies and do marketing and other work. “There are no secrets and they make decisions as owners,” Michaletz said.

He enlisted the help of their accounting firm and legal advice to make the succession plan strong.

Michaletz said the plan has made the several insurance companies they work with happy. “It helps our insurance companies who are our partners. They can see the future of Kato Insurance and they can see the future is planned. There’s a lot of other agencies that are being bought up by big companies and that concerns our insurance companies.”

The transition plan Kato Insurance went through is a model for how to do it right according to those who help guide business owners on planning to sell their business.

A good succession plan is something many owners put off too long or fail to do properly.

Mark Greenwood, of Compeer (formerly AgStar), said it’s a topic that comes up routinely from their farm clients. “We get asked a lot about it. It’s nice to see the next generation come back to the farm, but if you have multiple family members, how does that all play out?”

Eric Opsal, of Seccurian Advisors of America in Mankato, said many of the businesses they work with are multi-generational operations.

“In southern Minnesota it’s often a case of the business going from the grandparents to the parents and then to their children. “We work with businesses on the challenges as they move through the generations, getting equitable value and working on any family issues when some of the kids are taking over the business and some aren’t.”

Communication key

Opsal said that whether it’s key employees who are being pegged to take over the business or family members, owners need to keep everyone informed.

“The most important thing is to communicate early and often.”

He said that can be tough for an owner who has always called all the shots. “They’re used to having the buck stop at their desk and often what they do wrong is make the (succession) process almost a globe of secrecy. They think they can work it out alone with an attorney or CPA, but not involving the subsequent owners or partners is a mistake. Their hearts are in the right place but their process is flawed,” Opsal said.

Greenwood said it’s also important that as an owner begins the process they leave open all possibilities.

“Don’t jump to conclusions, especially if you have, say, three kids. The first child comes back and they give that one a good part of the ownership, and if another one comes back, how does that play out? So they need to have a long-term view of the world. What does all of the family want to do and how does that align?” he said.

“If you jump to conclusions right away, that can cause some real disruptions in the family and that’s the last thing you want.”

Greenwood said the businesses also need professionals to help. “You need a strong tax finance person and some strong legal advice and working closely with your lender along the way. Each family business is unique so you can’t generalize about a lot of things.”

He said that beyond legal and finance help, family-owned businesses need to keep family in mind. “There are people out there who look at the family dynamic. You can have a good tax plan and legal advice, but if your family dynamics aren’t sorted out, they might not be as successful. There’s a high failure rate for the next generation when there isn’t a good plan.”

Greenwood said many family business owners encourage their kids to go out and do something else for a few years before returning to the business.

“They get an understanding of other views before they come back. I think that’s helpful because it brings value back to the family business because you’ve seen other things.”

SBDC focus

The state Small Business Development Center has been focusing more on helping businesses with succession planning.

“In outstate we have a lot of business owners in their 60s and 70s, and they aren’t prepared for business succession,” said Mike Hahn, regional director of the local SBDC, located in the MSU Strategic Partnership building on North Riverfront Drive.

Hahn’s office is in a pilot program with Sibley County and others to create a website to give support to people selling their business or those who want to buy one. BizLinkNorth.com should be launched by June.

“It will prepare people to sell their business. So if folks are looking at other opportunities or are of a certain age, or if they’re looking to buy a business, they can go to this site.”

Others involved in the project are Sibley County, U of M Extension, Lime Valley Advertising and MSU.

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