In an earlier blog, CSB’s Chief Banking Officer, Aaron Schaffer, cited the high business failure statistics of 2nd and 3rd generation owned businesses. As we had seen similar bleak numbers in the past, the four owners of our business made the continued success of our company the primary goal throughout our upcoming ownership changes. There was not one clear path for us, and various options were considered. We researched but ultimately rejected an ESOP because of concerns regarding debt on the business and our need to bond large construction projects. We also looked at the option of financial buyers, but given our culture and entrepreneurial structure, we didn’t see selling to an outside group as desirable.
I suspect one of the reasons for next-generation business failures is the level of debt left behind by the first generation as a result of the buyout process. This led us to be intentional about the way our agreements and company were structured. We changed our buy-sell agreements to allow our stock to be left to any current owner’s children who are active in the company. We limited any debt payments to selling owners to 50% of cashflow after payment of unfunded capital expenditures, bank debt, and tax distributions. We also based these buy-sell valuations on book value rather than market value, as we aren’t trying to maximize our owner buyouts. Over the years we have been blessed to generate and distribute enough income that we no longer have all of our personal net worth in company stock.
Additionally, our team is working to put the business in a strong financial position.
- Long term debt will be paid off next year.
- We are building net worth to fortify staying power.
- A high emphasis has been placed on structuring contracts to create positive cash flow.
- Financial information is accurate and shared monthly.
- Branch income statements are generated as well as divisional and company consolidated statements.
Our team wants all of our managers to know how to make money and think like owners. By putting an emphasis on visibility and responsibility, we are teaching the next generation how to access and balance risk in the construction work we perform.
Our financial position has allowed us to add key, high-performing employees to our leadership team, whom we are confident will be better than we are. This will allow our current leadership team to mentor the new staff additions during this transition process without the financial worries more overhead often brings. Additionally, as we bring in people from outside the organization, as some positions will require, we are foremost stressing a cultural and values fit above work credentials. It is of the utmost importance to our team that the next generation of owners involved in our business understand that ownership does NOT necessarily equal leadership.
A further step our team is taking to encourage success throughout this process is having our ownership transition gradually with each of the four owners leaving at different times to ensure continuity and stability in the organization as much as possible.
Will our business beat the odds and continue for multiple generations? Although risk abounds, we believe it will.
Written by Loren R. Troyer
Secretary - Treasurer at Centurion Industries Inc.
Board Member at Community State Bank
800.488.3958
May, 2024
Secretary - Treasurer at Centurion Industries Inc.
Board Member at Community State Bank
800.488.3958
May, 2024