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No matter what lifecycle stage your business is in, experts say it is never too early to plan for a transition.

Succession-planning is a systematic process for making a smooth business transition when current officers and founders consider relinquishing their roles or ownership of the company. It includes finding new leadership and an organizational structure that will carry on in the future.

Cowgirl Creamery, an artisan cheese-maker, was acquired in May 2016 by milk processor and dairy company Emmi AG of Lucerne, Switzerland. For co-founders Sue Conley and Peggy Smith — both in their 60s — as their Point Reyes Station-based company with 95 employees approached its 20th anniversary, they felt it was time to consider options for the future.

Today this business has two production facilities, two retail shops, Sidekick Restaurant in San Francisco’s Ferry Building and a distribution arm — Tomales Bay Foods — that also handles a variety of other brands.

AIM FOR THE GOAL

According to media reports and company statements at the time of the sale, the company’s road map focused on the benefits of an acquisition or merger with a larger corporation. Among other critical goal-setting factors they wanted to know:

  • Is there potential for capital infusion and increased distribution capacity?
  • Would the firm’s model remain centered on its craft?
  • How has the potential suitor worked with other acquired entities, particularly local ones?
  • Could the business be run in the same way after a merger?
  • Will our creamery locations remain in Sonoma and Marin counties?
  • Could we benefit from a global firm’s long-standing expertise in our field?
  • Will our uniqueness and differentiation cache be maintained?
  • Is there respect for the value of organic production and sustainable agriculture?
  • Will loyal customers be scared?
  • Will a buyer understand and honor our cheese-making traditions and craft?
  • Can principals stay involved in the business after a merger?
  • Will a merger strengthen the existing brand?

When considering a buyer such as Emmi, fact-finding revealed that answers to a majority of their concerns were not deal-breakers. But they showed that the Swiss firm’s philosophy was in alignment with their own objectives.

To help provide a platform for the future, they both wanted their creamery to remain in Sonoma and Marin. They will. And after the merger, the agreement called for Conley to stay on as president and Smith as vice president.

A vital issue for Cowgirl Creamery founders was finding a firm willing to finance future expansion, since they did not wish to use internal capital. Partnering with Emmi gave them access to funds needed to build another facility in Petaluma. The expanded creamery is planned to open in September, enabling Cowgirl to increase production and reintroduce popular cottage cheese that has not been available for some time, while also being able to develop and introduce other products.

The partners found that Emmi fit their model closer than other potential buyers and that this firm is like-minded about the value of organic production and sustainable agriculture. Emmi’s global reach was seen as a plus for promoting their brand and marketing their cheese internationally.

“We invented the way we make cheese without engineers and dairy scientists, traditions that started in Europe, and now we will actually have experts to help us refine our processes and help create new cheese products,” Conley told the San Francisco Chronicle in a May 16, 2016 story. “This company understands the craft and traditions of cheese making. We’re confident that the merger will strengthen our business and allow us to operate as before without altering our high standards and by continuing our support of local dairy farmers.”

EXAMINE THE BUYER

Simon Inman, partner of Santa Rosa-based Carle Mackie Power & Ross, LLP, was legal counsel for the Cowgirl Creamery transition after the deal was made with Emmi. One of the speakers at a May 23 Business Journal event on succession-planning, he talked later about the ways to begin thinking about succession and assess a buyer:

  • There is no set formula or template for succession-planning. Every business is different. What is needed is a user-friendly approach throughout the process. One thing is certain, succession-planning will take longer than you think.
  • Know your industry, and be aware of firms who could potentially buy your business.
  • Look at firms that are expanding and may want to have a footprint in your region or market category.
  • While planning to remain in business, sometimes a buyer will make you an offer you can’t refuse. Be prepared to choose from among multiple eventualities.

KEYS TO SUCCESSION

Richard Stone, co-founder and chairman of San Rafael financial-planning firm Private Ocean, also was a speaker at the May 23 event. Stone later discussed the succession-planning process he experienced.

“After deciding it would be in the best interest of all of our stakeholders, we went through a succession-planning process at Private Ocean from 2007 to 2015 that also resulted in having good defense against the competition,” Stone said. “Our field is staffed with highly intelligent people. If they are not given an opportunity to advance in their careers, and be in a position to be offered an equity position, they could leave the business. Ensuring their future helps to sustain us today and for the long term.”

He described key elements of the process:

  • Collectively, Stone and his wife sat down and looked at all of their assets, expenses and aspirations for what they wanted to achieve during the rest of their lives.
  • This gave them a baseline for future decisions. Without this analysis, Stone said he would have been shooting in the dark.
  • After this step, Stone knew how long he wanted to work and what he needed to get out of the succession process.
  • This involved looking at tax issues, getting our books in order and working as a team. The rest was mechanics.

He said this process forced him to think outside himself.

“I asked questions, such as what have I been doing for my community, and what expectations does the community have for my continuing efforts, and can I do these things while still on the job or by stepping aside?” Stone said.

PLAN BEYOND THE TRANSACTION

Joseph Kitts, partner and resident tax adviser in Santa Rosa with Burr Pilger Mayer, Inc., said succession-planning is ongoing, not a transaction.

“I’ve come to believe that the single most important element of succession-planning is to establish regular business and/or family meetings to address issues with trusted advisers that may include legal, accounting, financial and investment counselors as well as insurance and company officers,” said Kitts, another speaker event at the event. “Succession-planning — including ownership transfers, estate and charitable giving plans, and the effective use of trusts — should be in place years before a transfer occurs.”

Regular meetings keep the principals and their advisers on the same page, while minimizing surprises and dropped balls.

PLAN FOR THE NEXT GENERATION

Kitts said wealth transfers of any kind need succession-planning, whether the family-owned business is to be retained for generations or sold.

“Without a strong commitment to such planning efforts, in my opinion, a family business is not likely to remain in the family for more than a single generation,” Kitts said.

He outlined benefits associated with family meetings.

  • Most importantly — get started. Everyone has busy schedules and the meeting itself is a good excuse to bring your children together and capture their full attention.
  • Sometimes children need to hear things from third parties before they accept what their parents have told them for years.
  • It is a team effort. Hold family meetings with your closest advisers. They do their best work as a team and can be proactive when kept informed.
  • Such meetings give parents an opportunity to share their previous mistakes with their children and express appreciation and compliments for assignments and jobs well done.

According to Kitts, in the North Bay, most businesses are either closely held or family businesses, which requires a relationship-driven approach.

“You can’t just meet once or twice a year and send clients on their way,” Kitts said. “We strive to have frequent or quarterly meetings to better understand their current challenges and provide advice.”