“I got a rock”
October 14, 2016
By Martha Sullivan, CPA, CVA/ABV, CM&AA, CEPA
Partner, Succession Planning Practice Leader
Good ol’ Charlie Brown. When watching “It’s the Great Pumpkin, Charlie Brown” by Charles Schultz, I was reminded of the fun of Halloween and trick-or-treating. You never knew what you were going to get, but it was sure to be good, right? It was free candy! When my kids were little, it was like a national holiday. So much so, that my son dressed up his favorite stuffed animal named Wolfie and took him trick or treating too so he could haul in twice the loot.
But, not all Halloween candy is the same. Sometimes it’s a Snickers ™ or a ButterfingerT.. Other times it might be a piece of bubble gum or jaw breaker. Or if you’re Charlie Brown, it’s a rock. (Arg!)
So, you may be thinking: What does “It’s a Great Pumpkin Charlie Brown” and succession planning have to do with one another? If you are the next generation, the answer is: a lot.
For the next generation in the business, knowing you are someday going to own it all may feel a lot like trick-or-treating. You may not know exactly what you are going to get but it is exciting to think about. Could it be Godiva chocolate? It might be Twizzlers. What if it is a popcorn ball? What if it is a rock?
For example, what if your family business owned a series of what seem to be successful Blockbuster Video stores in 2007? Mom and dad were transitioning the business to you for an agreed-upon price which is financed by a combination of traditional lending and the bank of Mom and Dad. Business appears to be booming and growing, with prospects for a long future. Fulfilling the bank loan as well as Mom and Dad’s nest egg should be a snap.
But as the next generation, do you know how the business makes money and if so, how? Are the elements in place for the business to thrive and grow in value? What’s going on with competition, technology and trends? Are there changes coming at us? How serious is this Netflix thing? Are people really going to purchase their movies through the mail, let alone online?
By 2010, Blockbuster had hit the skids and filed for bankruptcy. The 9,000 stores were down to 1,700, which Dish Network bought at auction in 2011, and then shut down all but 50 of them by 2015.
It sunk; like a rock.
What if our fictitious Blockbuster franchisee had read the tea leaves and sold their stores in early 2008 at the first sign of Netflix gaining traction? The family could have converted their illiquid assets into cash. True, the original dream of the legacy would change into a different legacy. However, the proceeds could underwrite new adventures.
How do you know if your business is a really a rock in disguise?
The best way is by obtaining an objective assessment of the business to identify the characteristics that make up its strengths and weaknesses. The assessment would also include researching and understanding the company’s external opportunities and threats. Armed with such insights, you understand where the business stands, what value drivers are in place to propel it forward, and what actions to take.
Many companies use a facilitated strategic planning process to accomplish this assessment, while others may have an advisor perform a valuation enhancement analysis or operational review. Either way, the driving force is the willingness on the part of the current and future owners to critically look at the business and be as objective as possible. Goals and action plans can be set in motion after the assessment. The collective knowledge and focus becomes powerful and energizing. The business has renewed direction. In essence, current and next generations know at which houses to go trick-or-treating to maximize their SnickersTM and Jolly RanchersTM.
And if by chance you get Charlie Brown’s rock, try trading with your little sister.