Start Now: The Steps You Need to Take Toward Family Business Succession Planning

Episode 183 | Challenges: Leadership Community Process

Knowing when to start the conversation about family business succession planning can be tough. Jim and Jason understand that the dialogue surrounding the family business can be hard as it is - without throwing in who is getting what and when. In this episode of the MakingChips podcast, Jim and Jason share their personal experiences as well as some insightful tips to help the manufacturing leaders of the Metal Working Nation get the ball rolling and keep the business growing.

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Knowing where and when to start the conversation

While bringing up succession is uncomfortable, it is important to start planning as early as possible. The earlier you begin the dialogue, the better. Jim shares that he knew the conversation needed to be brought up with his dad when he realized that the woman his father was dating at the time may have ended up being his stepmother - and an inheritor of all he had worked hard to maintain and create in the family manufacturing business. Family situations can get sticky, which is why it is vital to start now. Navigating all the discussions that need to take place, the legal issues, and the development of a practical, workable plan can take time. For Jim, it took several years from the time he began the conversation with his father to the time everything was legally settled on paper.

Jason shares that while his family situation wasn’t as difficult as Jim’s, his dad still realized the necessity to begin succession planning early in case of unforeseen or unfortunate events. It isn’t only about settling who gets what and when - it is also about preserving the future of the business.



Keeping interests and priorities in alignment

Jim knew that he didn’t want the amount of effort and energy he was putting into the family business to go to waste. It is important to understand and be honest with your family members about who has the greatest or equal interest in pursuing the future of the company and who is best equipped to handle the financial ups and downs. Jim shares that he didn’t want the business to be pulled out from under him by someone else when he was the one that had put the greatest amount of effort into the company and knew that was where his passion lay.

Similarly, Jason shares that while he and his sister both owned shares in the family business, Jason and his wife had sustainable future plans for the company and held a greater level of interest in its growth. Both Jim and Jason walked through the succession planning journey with their families, taking into consideration that it would be difficult and at least a little bit painful for everyone involved. The priority, however, always had to be the success of the business. Listen to the entire episode for details on how Jason and Jim helped their families walk the path of succession planning to cohesive decision-making.



Navigating the waters of appraisals and attorneys

Jim stresses the importance of seeking professional help when building a family business succession plan. Understanding which appraisals matter for tax purposes, payment plans, and divvying shares is vital. While conversations can create plans that seem doable, having everything put into a binding, written agreement is key. Having a business appraiser, attorney, and corporate account present can help you and your family make sense of everything involved and what needs to be done to make your succession plan a reality.

Jason explains the importance of understanding the fine print. You and your family probably won’t come to complete agreement on the first draft of the succession plan. Is what is being handed to you what everyone needs? Jason knew he didn’t want to be handcuffed in any way when he took over ownership of the family business, and so further work had to be done on the succession plan before he and everyone else was content with moving forward.



Jim & Jason’s call-to-actionSuccession planning

Get the conversation going - no matter what. Yes, it can be uncomfortable - whether you are the one giving everything away or the one receiving. Yes, it can give rise to rifts and pains that no-one in the family will want to feel. Jim and Jason stress, however, that the longer you wait, the worse it gets. They suggest networking with peers that may be going through the same thing and collecting thoughts and ideas on how to navigate the succession waters so that you don’t drown when you go in to start the conversation. The important thing to remember is that you do not want something such as succession planning to be a looming impediment to your family business. The growth and success of your business should always remain at the forefront. Because if you aren’t making chips - you aren’t making money.


Here’s The Good Stuff!

  • Jason and Jim discuss their personal experiences with family business succession.
  • The importance of beginning the discussion early!
  • Continuing the dialogue.
  • Balancing interest with priority.
  • Navigating Appraisals.
  • Getting started ASAP.


Tools & Takeaways


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Jim Carr: Welcome to MakingChips. We believe that manufacturing is challenging, but if you are connected to a community of leaders you can elevate your skills, solve your problems, and grow your business. I'm your host, Jim Carr, and I'm joined with my good friend and co-host, Jason Zenger, in one new podcast at the new MXD facility here in Goose Island. Jason, welcome to the show.

Jason Zenger: Hey Jim, how are you?

Jim Carr: I am good. It's late in the afternoon.

Jason Zenger: Yeah.

Jim Carr: We're getting stuff done today though man.

Jason Zenger: Yes we are.

Jim Carr: We are doing some thoughtful succession planning here.

Jason Zenger: Yeah I know, we need to figure out how to replace you on MakingChips.

Jim Carr: Yes you do, I'm not going to be around forever.

Jason Zenger: To the Metal Working Nation if you would like to apply for Jim's job, we are now taking applications.

Jim Carr:

Nick Goellner: I didn't make the cut.

Jason Zenger: Yeah exactly, Nick got the no, so we are now taking applications to be my new co-host.

Jim Carr: He wasn't aligned with our culture.

Jason Zenger: Exactly.

Jim Carr: No, Jason, I do not envy what you're going through now with your family succession planning, with your dad and your sister and your mother, and-

Jason Zenger: My wife.

Jim Carr: ... everybody involved. And your wife, and everybody involved. I know it's emotional, and it's tough. I know what I went through with my family during that time, and it wasn't a good feeling. It took time, it took years, quite frankly.

Jason Zenger: Yeah it's been a process, I'll tell you that much. The good thing is that my family, they're all really good people, and they all have the best interest of the company and everybody that works there in mind, so we're all on the same page as far as that goes.

Jim Carr: Well you know it doesn't have to be painful. It can be emotional-

Jason Zenger: It's gotta be a little painful. One of the things that my dad said, he was like, "If it's not just a little bit painful for everybody involved," you know everybody's taken a little pain evenly.

Jim Carr: Absolutely. Well, we're gonna talk about our respective business successions, in our respective manufacturing companies today. Mine a little bit older than yours because I did it 14, 15 years ago, and how it played out for me. Everyone's business succession is entirely different based on the size, and scope, and-

Jason Zenger: Number of family members.

Jim Carr: ... complexity of the whole business, but I think that by us sharing our own personal experiences it will help somebody out there in the Metal Working Nation to take away a little bit of the pain, and just clear the clouds and make it a little-

Jason Zenger: Give some ideas.

Jim Carr: ... Yeah.

Jason Zenger: Absolutely.

Jim Carr: What's right or wrong. So before we go to that, anything new in your company, other than your business succession plan?

Jason Zenger: That's enough.

Jim Carr: That's enough, I can imagine.

Jason Zenger: That's enough, yeah.

Jim Carr: Likewise at Carr Machine, we're not-

Jason Zenger: Having some tough conversations with Ryan probably, about taking over I mean.

Jim Carr: ... Yeah just at lunchtime today I said-

Jason Zenger: You might be looking younger, but you're not getting younger.

Jim Carr: I'm not looking younger, I'm feeling it lately, let me tell ya. We had a conversation with [inaudible 00:03:03] recently, about business succession. When he said it, I said you know I better start reaching out to some experts about getting this plan initiated, because you can never start too early. Before we go to the episode, and Jason and I sit down and cry about our business succession plans, Nick do you have any manufacturing news?

Nick Goellner: Yes we do. We've got a little bit of news, original article, and we've got a contribution from a chip-in contributor, a manufacturing leader who sends us an article to publish on MakingChips. This week's news though is an article called Six Tips for Successful Family Business Succession Planning.

Jim Carr: What do you know, it's aligned with what we're talking about today.

Nick Goellner: First tip-

Jim Carr: Where is this from?

Nick Goellner: ... This is from The Balance SMB.

Jim Carr: Okay.

Nick Goellner: So it's a small-to-medium-size-business publication, and the article starts by saying start business succession planning early.

Jim Carr: That's what your dad said.

Jason Zenger: The longer you wait the more painful it gets.

Jim Carr: I know, I took that one to heart.

Nick Goellner: The second point, involve your family in business succession planning discussions.

Jim Carr: So is that everybody? Is that what that means?

Nick Goellner: I think anyone who-

Jim Carr: When they said the family, everyone? The wife, the mom, the dad, the brothers, the sisters?

Nick Goellner: ... Yeah, I think anyone who's clearly involved in the business, or in some way could be considered. The article says opening a dialog among family members is the best way to begin the process of a successful succession plan. Try saying that fast. One where close attention is paid to the personal feelings, ambitions, and goals of everyone concerned. So to answer your question, everyone concerned. If there's people who are clearly just not involved, then-

Jim Carr: They don't need to be there.

Nick Goellner: ... they don't need to be in the discussion.

Jim Carr: Three.

Nick Goellner: Third point, look at your family realistically, and plan accordingly.

Jim Carr: Realistically is the key word in that sentence.

Nick Goellner: Four is get over the idea that everyone has to have an equal share.

Jim Carr: Oh that's interesting. I think we're gonna be talking about that a little bit Jason, huh?

Jason Zenger: Mm-hmm (affirmative).

Jim Carr: Yeah.

Nick Goellner: Five, train your successors and work with them. And the last one, and my dad brought this up too, get outside help with your business succession planning.

Jim Carr: You have to have professionals help you with it, it's not something you can just do, and put on a Google Sheet and figure it out, you need your accountants, you need attorneys, you need people that have done this before to make it right.

Nick Goellner: Seems like the overarching theme is just-

Jim Carr: Starter.

Nick Goellner: ... emphasizing communication.

Jim Carr: Oh communication is key.

Jason Zenger: I would say communicating now.

Nick Goellner: Yeah, absolutely. Actually my article for this week is about how to have tough conversations about succession planning when you're the next in succession. I think that's something that you'll probably talk about in this episode, when you had to first have that conversation with your dad. You talked about how you did it over martinis, and it was able to kind of break the ice a little bit so you could have that conversation.

Jim Carr: Yeah absolutely.

Jason Zenger: So why don't we talk about that Jim? How did that go with your dad, when you took over Carr Machine & Tool?

Jim Carr: Well in full disclosure, I would say we started the conversation back in the late 80s and the early 90s. My situation was a little unique. My sister was not involved in the company at all. My dad and mother had been divorced for years. My dad was dating a woman that I really didn't know that he could potentially ask her to marry him, that would really disrail a lot of my ideas about business succession. The bottom line with me was I thought why am I putting a lot of effort into a business when I don't have a guarantee that this business is gonna be mine after I put a lot of effort into it and I really grow it to where I think it could be? That was the big thing for me, that I really had to think about, and really made me start the conversation with my dad.

Jason Zenger: Yeah, and as we said before, everybody's situation is unique and you just clearly communicated how your situation was very different, probably, than a lot of others out there.

Jim Carr: Honestly, the big thing was I didn't know that my dad was gonna marry this woman. I thought oh my god, if he marries her, this business that I'm working in day to day to day to day, could go to her. Then guess what? If she dies three days after my dad, that business is gonna go to her kids. I'm gonna be sitting holding my ears. I'm gonna have my fingers in my ears and playing twiddly thumbs with myself. That was the impetus in why I really started the conversation, and I knew it was important. Quite frankly, when I said that to my dad is when he really listened to me.

Jason Zenger: So I'm confused. Was twiddly thumbs the impetus, or was your dad's girlfriend the impetus?

Nick Goellner: I mean a situation that crazy, I would play twiddly thumbs with myself too.

Jim Carr: Well you know what I mean, it was a tough conversation to have.

Nick Goellner: Because he's in love right?

Jim Carr: Well he was in love, and people do crazy things when they're in love. I didn't know, as a young man in the business all I knew was I was going in every day, working hard, doing my 6:30 AM to my 5:30 PM shift, and coming in on Saturdays and talking to him about things that were business relevant, and I thought oh my god, if he marries her, the business could completely be pulled out from underneath me. I didn't want to risk that.

Jason Zenger: I think that is very insightful for you to have realized that. My dad actually thought about that same thing, even though ... I mean my parents are very happily married, and hopefully they live for another 20 years together happily married, but my dad kind of had the foresight that he probably ... his dad died at a young age ... that he didn't know how long he was gonna live, and he had a conversation with me and with my mom, and just said, "Hey, if something happens to me, it's immediately going to you, because I don't want this to get into the hands of," ... my mom was like, "Oh I would never marry somebody else." Of course she would say that, 'cause nobody ever knows what they want to do in the future. I actually believe my mom that she would never marry anybody else, but you just-

Jim Carr: You never know.

Jason Zenger: ... never know. So you need to be protective and look ahead.

Jim Carr: What I would recommend for that, if somebody's in this scenario right now, and they can't completely decide on a true business succession plan, I would get a buy-sell agreement-

Jason Zenger: And that's exactly what-

Jim Carr: ... on the table right away, and have everybody sign it and say, "Listen, if something happens out of the extraordinarily, this person has the first right to buy the business."

Jason Zenger: ... Yeah that's exactly what my dad did 10 years ago, before we figured out our succession planning.

Jim Carr: So I knew I had a problem to overcome. My dad didn't want to talk to me during the day, so I thought, you know, I know my dad likes martinis, and we would go out, we would schedule times together to go out to dinner. We'd sit, we'd have a few drinks together-

Jason Zenger: Sometimes they call that lubricating the conversation.

Jim Carr: ... Okay, if that's what you want to call it, that's fine. I like to call it just lowering the inhibitions, to create conversation and communication.

Nick Goellner: So you get your dad drunk and then say, "Hey can I have the company?"

Jim Carr: Well no, but-

Jason Zenger: No he said, "Sign here please."

Jim Carr: ... We were looking eye to eye, we were in a relaxed environment outside of working, and that was the time to talk. It just took time. I'm talking, from the first time that I brought it up to him, to the actual time in 2004 when it finally got transferred over, I swear guys it was 10 years before it actually took place. Give yourself plenty of time to make this happen. Start the dialog now, because it could potentially take a long time. Then there's so many different avenues you can go down to actually passing the business over. You have to decide with your accountant and your attorney the best way to do it. Jason, anything to add to that before we move on?

Jason Zenger: Keep going buddy.

Jim Carr: Okay, so I got my team together. I brought in a business appraiser, I brought an attorney, I brought our corporate accountant in, and we started the process. We started an open dialog about what it's going to take to get the machine transferred over. I learned a lot, man, I learned a lot about business appraisals. We happened to get a great attorney through our corporate accountant, and he had done a lot of this before, so I would ... I wouldn't get a real estate attorney, I would get an attorney that has experience in business succession, family business succession plans, because they're gonna be the one that are most privy to the right way for you to move the business over.

Jim Carr: How did it all go down? Well my sister had part of the shares of the company. My dad had the most shares, and my sister and I had equal shares of the business. So the first thing we had to do is once we got a valuation of what the company was worth, you have a hard number to work with. So then my sister owned 10% of the business, so the first thing I had to do was I had to buy her out of the business, because she had absolutely no interest-

Jason Zenger: And she was okay with that.

Jim Carr: ... She was fine, she didn't have a choice. She didn't have a choice.

Jason Zenger: Well you have a choice, you could say, "No I'm not going to sell you these shares."

Nick Goellner: Yeah but Jim is bigger and stronger than his sister.

Jim Carr: Well, I think that she figured it's either now or never, and it was just ... that was an easy part to get over. She wasn't working in the business, she had no interest in the business, she didn't know about the business, she didn't know the first thing about what we did, and so that was an easy thing to overcome. The hard part was actually paying her out, those hard dollars, over a period of time.

Jim Carr: The second part was how do I acquire my dad's 80% of the business? So again, it was different because my dad was single. He owned all of these shares, and we had to transfer them to me during his lifetime. Is there any parallels to my business succession plan to yours that's happening right now? If you want to share, I don't-

Jason Zenger: Yeah, no I-

Jim Carr: ... want to open up any can of worms here.

Jason Zenger: ... No it's okay, I think it's ... I can share now. There's definitely some parallels there. Like you said before, these are difficult conversations to have. I would say one of the big differences is my sister is actually involved in the business. She runs Zenger's accounting department, and one of the differences there though is that I also have another business which is Black, which is my wife and I, and so we have two similar businesses that, at some point in the future, are going to be brought in together. My sister does not have the same ... I think some things changed for her, like when she became a mother, because she doesn't want to take on the same levels of stress and accountability, say, that I wanna take on. I think for those reasons, we realized that it was best if the ownership of the company just relied within my wife and I. I think it was the best thing for the future of the company, and also the best thing for my sister. She ended up agreeing with that as well. I think sometimes people have visions of grandeur of what it means to own a company. It's not always good, and sometimes-

Jim Carr: And it's not easy.

Jason Zenger: ... It's not easy, and sometimes when you have a minority percentage in a company, it's especially not necessarily a good situation, because A, you don't have really any kind of say-so whatsoever-

Jim Carr: Your hands are tied.

Jason Zenger: ... your hands are tied, but in our case when you have an S corp you have financial burdens that could come out at the end of the year, if the company's profitable, and you don't have any kind of resource to be able to collect upon that burden if the company doesn't wanna pay out a dividend, or something else. I think when we put everything together, the scenario that we're going to put together is that the business is gonna be in my wife and I's hands, which is better for our marriage, and my sister and I are going to be involved in any kind of real estate, or non-operating ownership, in the future. That's kind of the way that we've put it together. Of course, we valued the company like you said, all that kind of stuff, and we're gonna pay out my dad over a period of time.

Jim Carr: Did you get a business appraiser?

Jason Zenger: Our accounting firm did an appraisal, and then we negotiated. There's a lot of things that you need to take into-

Jim Carr: Well there's three different types of appraisals, a fair market value, a median value-

Jason Zenger: ... It was probably book value.

Jim Carr: ... And a book value, yeah.

Jason Zenger: Yeah, so everything has to be, because, I think, according to the IRS, there's some kind of term for it, when it goes from parent to child, where you have to be careful with the valuations from an IRS standpoint.

Jim Carr: I didn't ... I don't remember-

Jason Zenger: That might've changed, I don't know, but there is some kind of requirements as far as the value that you put on the company. We're paying my dad out over a period of time, and my sister's gonna end up getting half the cash, assuming that my parents don't spend it all, which they don't plan on anyway. So, you know, is she getting half the company? Yeah, she's just getting it in the form of cash instead of stock, which I think will end up being a win-win for everybody in the long run.

Jim Carr: Good, thanks for sharing that. How important, of these three things, the business appraiser, the attorney, and the corporate accountant, which of those do you think is the most important person, or do you think they're all equally as important?

Jason Zenger: I think they're all equally important. I mean our appraiser and our corporate accountant were all ... well the appraiser, I think, was on the corporate accountant's team, I believe. I could be wrong about that, because my dad handled a lot of that, I just ended up negotiating a final price. So the appraisal price that my dad handed over to me was not the price that we ended up settling on, or the terms. One of my big things was when I bought the company, I didn't want to be handcuffed in any way. I wanted to have freedom, because to me freedom is more important than anything. There's a lot of situations, like family business succession, where you're really handcuffed. I refuse to be handcuffed, that's a big part of who I am as a person. I don't wanna-

Jim Carr: Well that's exactly how I felt, because I didn't know that my dad was gonna marry this woman. Could you imagine? What if he passed, and she took over as president, and she knows nothing about my business, and she's telling me what to do after I've been-

Jason Zenger: I think it would be funny, but you know-

Jim Carr: ... Yeah I'm sure you would.

Jason Zenger: ... for me it would be funny, but not for you.

Jim Carr: You know what? I'm glad you're laughing, because I wouldn't be. But anyway, I get it, I get about being handcuffed. No one wants to be handcuffed, especially if you're gonna put in the time and the effort to grow the business, and you have a vision for success. I don't want any upsets, at all. So that was really the whole impetus in why I went back to my dad and pushed him to move forward.

Jim Carr: So now I've got a legacy continuing, I've got, as everybody knows, Ryan Carr is now in the company, and he's 27 years old, and we're thinking this is probably the plan, and now I've gotta really think about what's the right thing to do? How is it all going to play out? Because he, right now, he's one third of my offspring, and we have to value that one third amongst all the kids. We'll see how that plays out. I don't know, it's going to be interesting. Thank God your kids aren't there yet, you don't have to start playing that game yet.

Jason Zenger: To be quite honest with you, I've already started thinking about my succession, and I've got some ideas that I may start following through with sooner rather than later. Might be different than what everybody's thinking as well.

Nick Goellner: Ooo, cliffhanger.

Jim Carr: That is a cliffhanger.

Nick Goellner: Suspense.

Jim Carr: It is.

Nick Goellner: In 10 years we'll have to do an episode on it.

Jason Zenger: Maybe sooner than that.

Jim Carr: Jason what would you say the call to action would be for that manufacturing leader out there that's in a situation, that they either A, are gonna pass the business down to a family member, or B, the kid, the cousin, the uncle, is in the business, and needs to talk to their superior about having that business succession plan put into motion?

Jason Zenger: Get the conversation going, no matter what. I mean, push the conversation, go out and have a glass of wine over the conversation, have the conversation now. I don't care if your parents just offered you the job, and you haven't even started. Start having the succession conversation, because it's that important to start having it now. If you're the parent, make it a part of the conversation right now. It needs to be had now. The longer you wait, the worse it gets. The sooner you have the conversation, the better it is going to be for everybody.

Jim Carr: And what I would say is start networking with other people, with peers.

Jason Zenger: Yeah, get some ideas.

Jim Carr: Get some ideas. Obviously-

Jason Zenger: Jim's got a way, I've got a way, but I mean you know-

Jim Carr: ... If you're listening to this show, you're getting information already, so you're networking with us, even though you're not physically talking to us. We're talking to you and telling you us, but you're already being proactive by listening to us and our particular situations. I would also say meet with local associations or chambers of commerce in your area, and talk to experts within those associations. They will guide you, and there's gotta be people within those channels that can give you some quality information back.

Jason Zenger: Yeah, 'cause I mean you don't want to have something like this be an impediment in your business. We all need to be growth oriented, and if you let the intricacies of who's going to be the next owner of a family keep you back, because the owner is older, you're gonna have people that are gonna leave you if they don't see that succession coming in the future.

Jim Carr: You bet. Call to action is what Jason and I just said, I would recommend taking some of those small tips that we just shared with you and acting on them, and don't forget to subscribe to to get all the information from the boring bar about all our weekly articles that we publish. There'll be a lot of alignment to business succession in those weekly articles that will probably be able to help you, equip you, and inspire you to get moving on it. Because at the end of the day ...

Jason Zenger: If you're not making chips ...

Jim Carr: You ain't making money. Bam.

Jason Zenger: Bam.

Speaker 4: As always, thank you for listening to the MakingChips podcast. You need to increase the speed and feed of your business. If you're not elevating your manufacturing leadership, you're going to get left behind. The Metal Working Nation is committed to a new way, to stay ahead of the competition. We have more content to help you make and elevate at Gain access to exclusive content, as well as videos, blogs, show notes, and more resources designed to equip and inspire you. We'll see you next time.

Nick Goellner: Snotty noses.

Jim Carr: I wasn't going to wipe it.

Nick Goellner: That would be funny.

Jim Carr: I certainly didn't want to look at that booger hanging out of his nose.


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