What happens when a business owner is ready to pass on the company he or she founded?

Ray Isaac is president and CEO at Isaac Heating and Air Conditioning Inc. in Rochester, New York. Like many — maybe even most — HVAC contractors, he’s part of a multigenerational, family-owned business; it was established by his grandfather in 1945.

“Passing the company to a second and a third generation … it’s pretty much standard in our industry,” he said.

Less standard is planning for what happens when it’s time for the next generation to step up. According to a 2016 survey of small businesses (under 300 employees) by Nationwide, three in five do not have a succession plan in place. Of those who do, fewer than half have discussed it with a lawyer or financial advisor. Millennial business owners are most likely to have a succession plan in place (61 percent), compared with 32 percent of baby boomers and 32 percent of GenX leaders, according to the study.

It’s true: between keeping customers happy, processes up to date, and revenues in the black, small business owners have plenty to juggle today, next week, and even next year. But whether they’re aiming to sell the business or pass it down in the family, succession planning is vital to the company’s continued success — and to the founder’s legacy.



Isaac is one of four brothers who make up the third generation of his family business. Like his dad and uncle before him, the team bought the business; it wasn’t given to them. And the mentality of having “skin in the game,” rather than inheriting the company at no cost, is what keeps a business strong and viable, he said.

“The key thing is, there are two distinct strategies for when you’re transitioning a business,” Isaac said. “One is tax strategy, and the other is succession strategy. What is best for tax strategy is not always the best way to transition a business, and they’re often contradictory. Everyone wants to save money; you need to look at both sides of the coin.”

Isaac and his brothers bought the company in 2017. They went to the bank, got a loan, and bought out his father and sister’s shares.

“I’ve often said what my brothers and I went through last year — going to the bank and getting a loan, putting the house up as collateral, getting skin in the game … it creates a whole different set of thoughts and strategies and processes that you put in place to keep it successful,” he said. “Sometimes, the little bit of stress you have, the common goal — the debt — creates a nice little opponent. My brothers and I … it’s been a solidifying process for us: Everyone’s put our stake into the new ownership.”

Gifting the company to the next generation can set it up for failure down the road, Isaac warned.

“It can instill a sense of what I call entitlement in the business: You were given it, you didn’t have to buy it,” he explained. “You have a bunch of owners who come in, but they’re not invested. You’re creating that entitlement mentality; you were gifted something just because of your name.”

Currently, it doesn’t look like any of the Isaac brothers’ kids are interested in the business — and that’s OK by them.

“People say ‘are you upset that the fourth generation isn’t interested?’ and I tell them there’s a statistic that I’ve heard: 4 percent of fourth-generation businesses actually survive … and a lot of that is because of that entitlement attitude.”

Ironically, that sense of entitlement is often created by well-meaning family members, he said.

“Everyone wants their kids to be better off than they are, and it can ruin the business,” Isaac explained. “What seems like the best strategy for the next generation could be the worst for the company.”

The first generation works hard to launch the business, according to Isaac; the second generation sees and appreciates that hard work, but the third generation is a step removed and only sees the results. At that point, a lot of companies have become lifestyle businesses, not equity businesses, he continued.

“You have the private parking spots with the Mercedes and BMWs, the shop is full of ‘toys’ like Jet Skis and motorboats, everyone in the family is a VP … That mentality is where the third generation comes in, sees that, and they don’t know how to separate the two,” he said. “They think that’s how it’s supposed to be, and they kill the business to achieve it.”

That’s why Isaac and his brothers always run the business as an equity.

“We try to run Isaac Heating and Air Conditioning like it’s General Electric: where we as the owners work for someone else in the company,” he said.

For example, one of Isaac’s brothers is a technician; he reports to someone else in the business, but he votes his authority in board meetings.

“The leadership team is so important … three of our VPs are not family,” Isaac said. “It’s the leadership team that really does the growing.”



Growing that next group of leaders is absolutely key to business longevity, per Theo Etzel at Conditioned Air in Naples, Florida. Conditioned Air was founded in 1962. Recently, Etzel, the president and CEO, handed over day-to-day operation of the company to Tim Dupre, a 38-year-old “youngster” who’s been with the company for 21 years.

The transition is part of an overarching mentorship plan that’s baked into the company’s DNA.

“This has been in the works for a while now — about three years,” Etzel explained.

Dupre started as an apprentice just out of high school and took every opportunity to move up through the ranks, from branch manager to department manager to company president.

“We believe in career development planning — promoting from within,” Etzel said. “During those three years, I appropriately and methodically delegated CEO decision-making responsibility to him and mentored him, so he earned the spot. In other words, the title came after the practice.”

Etzel’s decision to make leadership development part of his company’s philosophy dates back to when he took over the business in 1995.

“In growing my team, I surround myself with people smarter than me, and they know what to do,” he said. “I really equip them, serve them, let them become the best person they are. Every manager and leader within this organization is tasked with developing his or her replacement over time. You have to have rising people underneath leaders who will fill those shoes … one, if you’re going to grow, and two, if something happens to one of those leaders.

“I’ve always felt like a true organization can’t revolve around one person,” he continued. “If I couldn’t show up tomorrow, they’re not going to put a chain and lock on the front door. If that were the case, I wouldn’t have really built an organization.”

Instead of performance reviews, employees at Conditioned Air have career development discussions.

“It’s cliché, but you take the best service technician and make them a service manager, and I’d say the majority of times, that does not work out, because working with people is much different from working with a machine,” Etzel said.

So the company proactively provides training and opportunities for hands-on experience for employees to work on managerial as well as technical skills. As a result, Conditioned Air has promoted from within 40 times in the past three years.

Going forward, Etzel will remain with the company, focusing on strategy, acquisitions, and expansion, while the day-to-day operation is handled by Dupre. Turning over that responsibility was a transition Etzel had to make consciously.

“The hardest thing for a leader, an owner, a partner ... is to appropriately delegate and truthfully delegate,” he said. “You have to give responsibility and accountability and hand that to someone with the guidelines of your culture of the company. You have to let people have experience in not only successes, but some failures. This is how people learn. You have to be willing to let someone fall down and learn from a mistake, and then try again and get back on track.”

It’s a balance, of course, and it doesn’t mean letting someone make a decision that will tank the whole company.

“It’s like if you let somebody skin their knee, they probably will figure out how not to do that again,” he explained. “It’s gonna cost you a little money sometimes, but I look at it as paying for school. You have to let them answer the questions … they have to discover the answer. In many cases, quite frankly, they’ll show you a better answer as they grow.”



For the Church family business in Elkhart/South Bend, Indiana, the top three tips for succession planning were an easy pick: communication, communication, communication.

Church Plumbing and Heating was founded in the early 1980s by Michael D. and Mary Church. Their son, Michael J. Church, started in 1996 at age 16 and is now vice president and general manager. It was a natural progression, they agreed.

“As Michael matured … he brought a lot to the table in terms of his financial knowledge,” Mary Church said. “Mr. Church and I had a lot of practical, feet-on-the-ground knowledge that was very valuable to Michael as he got started. Over the years, because of our communication, we trust him, and we wouldn’t sell the business to him if we didn’t.”

That communication was a conscious, long-term effort on the part of the Churches — they hired a communications coach.

“We didn’t always communicate as clearly as we do now,” Michael J. Church said. “It was kind of the familiar familial dynamics, how kids communicate with their parents … a certain amount of push and shove and shove back that happens within that dynamic that really carried over into the way we communicate professionally. We were accustomed to it, we knew neither party really meant any harm by it, but it got in our way.”

First, the Churches worked with their coach on day-to-day topics. Once they got comfortable with that, their conversations flowed naturally into how to help the business succeed, then into what all parties involved wanted to get out of the company’s sale and purchase.

“I’m very much a people person and operate on a very emotional level,” said Mary Church. “Michael is very much a business person … and there’s nothing wrong with that. But when we’re trying to communicate on how to run a business, we butt heads.”

So the coach helped her figure out how to translate her goals — like giving their employees a fulfilling career — into business strategies, and helped Michael D. Church convey his ideas in a way that she could get on board with as well.



Once the Churches understood what the others wanted, it was easier for them to guide their attorney to craft a buy/sell agreement that was beneficial to both generations. That’s something that Nate Oland of Federated Insurance, a 10-year ACCA Corporate Partner, stresses during succession planning: working with qualified professional planners who can give their opinion of what will accomplish both parties’ goals.

The Churches have their buy/sell agreement in writing. While there’s no formal plan in place for when it will happen, what will happen is clearly spelled out.

“I own about a third of the company ... and my parents are under no obligation to sell the company to me,” explained Michael J. Church. “But I have first right of refusal if they were to want to sell it to anybody other than me.”

“Our gut feel is when we’re ready to retire, we will sell another third of the business to Michael and retain one-third ownership in the business — so we’ll continue to share in the profitability, but Michael will have control of the company,” Mary Church said. “I feel like [the agreement] protects the interests of all three of us.”

Michael J. Church agreed.

“There was a lot of back and forth in that; I felt two distinct tugs,” he said: both as a savvy investor and as a dutiful son looking out for his parents in their golden years. “We took the time to get really clear on what they want … and I think that really aided us through the process and continues to aid us as my parents are nearing retirement. It’s gonna be different for every company and every individual, so taking the time to be really clear on that is really worth the time.”

Isaac Heating and Air Conditioning implemented its first buy/sell arrangement last year, laying out things like where the stock goes if one of the owners passes away.

“Not having a good buy/sell that everyone agrees to is very stressful; it can tear a company and a family apart,” said Isaac. “It almost happened here: Somebody can dig their heels in and say ‘I’m just not going to do it.’ It creates the unknown, and everybody starts assuming things.”

Next, Isaac is looking to work some key triggers into the agreement: for example, when an owner turns 70 years old, their shares might be sold back into the company at market value, and their kids would have the option to buy in.

“All these things would be dictated by the agreement,” he said, “so nobody’s the bad guy who drove somebody out of the business.”

Just because one generation steps down from leadership doesn’t mean they need to bow out completely.

Etzel stayed on to lead big-picture strategy and advise the operations — not control them, he emphasized.

“It’s exceptionally hard: Delegation is typically a very learned thing, especially if you have a control enthusiast at the helm,” he said. “You have to be willing to get out of their way — equip them with the right tools, but let them take charge.”

Isaac’s dad stayed involved as chairman.

“He’s our tiebreaker at board meetings,” Isaac said. “We wanted to keep him involved, so there’s some history, some wisdom. He always prefaces every comment with ‘I don’t own the joint anymore, but…’ and I know there’s a piece of wisdom coming after that.”

Publication date: 11/5/2018

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