Should I stay or should I go??

I am writing this post in a effort to get some feedback and help me with my decision. I want to preface this by saying that I am frequent lurker on this forum, but unfortunately don't participate much in posts and replies.

I am 35 years old and have worked in the family roofing company for 14 years. The company was founded by my grandfather in 1958. When I first joined the company we were producing $1mil annually with 14 field employees. Today we have 25 field employees and finished the year just shy of $4mil in sales. We have consistent maintained high margins on our sales revenue as well.

Our company is currently owned by my father. In the next few years he wishes to retire and sell me the business. I am our only salesperson & project manager. It has always been this way since I joined the company. 95% of the customer base was built and is handled by me. My father has good intentions of passing the business and it's assets to the next generation, but I need to make sure my family & I are protected and have some security. He has put together agreements and trusts to protect his assets upon death, but he has recently remarried. I have spent a fortune on attorneys fees recently determining & evaluating my risks.

I have considered going into business for myself for the past several years. I have over the years formed an LLC, gotten my state contractor's license and have purchased several pieces of sheet metal equipment required to run a small shop. If I do leave one of the issues I must deal with is the guilt (the other catholics on the forum should understand this) for leaving my father.

If I stay I could lose it all in the event of my father's death or divorce.

Any thoughts on the transition of family businesses? What should I do? All I want to do is make the right decision!

Yes you need a good and experienced transactional lawyer to whom you and your dad trust the most. They can help you in legal documentation and you will not have to worry about any legal problem while having dad's business.

Thanks Mike! I'll shoot you an email today.

Colpaw,

I don't know how I missed this thread, but your situation is EXACTLY like mine 12 years ago. Except for the new wife.

As egg said, MikeAtHRI@aol.com and I'd be happy to give you my cell number to talk.

We did some creative things with company stock, which already owned 10% of when we signed the purchase cgreement, to great reduce the "value" of the company, and made the bulk of the purchase price the realestate. Between the continuing salary, insurance, vehicle, and monthly payments, I'm paying dad multiple 7 figures over a 25 years period.

It takes a lot of trust for a parent to set their child free with their life's work, in the hopes that they will pay them their due over an extended period. Now that I have adult sons of my own, I truly appreciate the trust that dad had in me. From what you describe, it sounds like your dad should, and does have the same trust in you.

Seriously, I'd love to share what I can, if you're still in the decision process. There is little value to buying a roofing company. But there is a great deal of value in what your dad and grandfather have done before you. If dad has the faith in you, don't throw it away.

And egg. Thank you.

Thank you to all that have replied & offered input/advice. I will be making my decision in the next couple of weeks.

(I promise to be more active on this forum as well)

You need to relax..........a good business attorney that both you and your Dad trust (to handle the details) can easily draft a sale document for you. You're not buying employees, equipment, etc. you're buying the years of good business practice and reputation that your Dad (and you) developed. To go on your own would be starting all over and believe me, going it alone is not pleasant and very risky. Just sit down with Dad and work things out. Forget about the new wife, that's Dad's problem, not yours. I hope it all works out because starting a new business in today's climate is VERY hard to do.

JET

Old School - I agree that inflation and significant material price increases affect the sale number. But the personal income my father has received in the last five years is 4 to 5 times what he made in the previous 40 years!! We have done very well in the last 7 to 8 years. If my father sold the company to someone else I would not benefit financially. I presently have no ownership in the company.

Seen-it-all - the agreement between my father & I would be a payout over a 7-year period in the form of a note with monthly payments to him. Upon his demise the note would be forgiven. If his new wife would receive any benefit from the buyout I am not interested in the deal.

Roofguy - this agreement is what I'm shooting for.

Wywoody - I have one other sibling who not interested in the business.

Moatsroof - the agreement with the trust as the beneficiary is basically what has been discussed. Following his death, then his wife's death I would be the beneficiary of the land where the company operates from. Am I missing the big picture on this one? Should I be grateful that I'm even being considered as an ultimate beneficiary? I paint this awful picture that I'm 65 years old and still paying rent to the widowed third wife and no way to retire!

Businesses are bought and sold every day. Find out how much it is worth. If you helped to build it up, your father knows that and he should discount it to you, according to how much you helped to raise the value. Before you slap yourself on the back however, think about this. If 15 years ago the business did $1 million and this year it did $4 million that does not mean it did 4 times as much. Materials have more than doubled in that time, so doing the same amount of square footage at the same margins would mean that at most you have increased the volume of roofing by about 60 %. Not bad mind you, but dad did ok before you got there. If you have went from 14 field emplyees to 25, that about fits the rise in revenues percentage wise.

If your gross profits are at 20% your net would be about 250,00 to 300,000 a year. Maybe dad can sell the whole thing for a million cash, give you 40% of that for your efforts over the last 15 years, and he can collect his lease money from the land while you go and start your own business with cash money. Since he is selling and he would get the cash up front, you would not be liable for a non compete clause.

No hard feeling from the step mom, you get paid for your efforts over the last 15 years. Dad is happy, you are happy and you don't have the head aches either. You could start small and let the market build. If the company won't bring in $1 million, that would be a good sequway to let dad know what the real value is. It might as well be straight up business! again, JMHO

Old school- good points. One question that consistently arises is if this a good long term investment? Yes one can make good money in this business, but will this be a sellable business when I want to retire? My father has a good security blanket by collecting revenue from land that the company will lease from him. My only exit strategy would be to sell the business.

Roof dawg- thanks. I've thought about wc expense for a new business and the first couple of years would be difficult. And you are right in questioning why I would want to leave a business that I helped build. How much should one pay for a company that one had part in building?

I guess the answer is.....yes and no. When you are young and working with your dad, it is a great time to learn and to help and pull your weight. Even in your early 20's when dad is in his 50's that works for a while. You would not want to "give" a young son that much control over the family business. When you get married and have a family, I believe it is well past time to start to actively pass on the business. If dad hasn't accumulated enough to start to leave, something is wrong, and it is not a business, it is a job and a hobby. There is nothing to "pass" on in a word.

You should be able to make enough in 25 years that you should be happy to leave and let the next generation do the work. It does make a difference how many are in the family. It certainly works for some, but not all. it is a matter of planning and execution of the plan. By your mid to late 30's, the plan whould be well on its way to completion. JMHO

You must remember a strong business is about strong numbers, not strong emotions. First, is there a buy sell agreement between anyone limiting the amount of ownership the new wife can get upon dad's death? If so how much? Will his shares transfer to you or to her? If nothing exists now, she will get them through right of survivorship. If the shares are held by a living trust, than you can inhereit them at his and her death, if you get a written agreement. Also if the buy/sell agreement between you and dad make the trust the beneficiary of your purchasing, you end up with all your money back (less what he spends) anyways as a part of the trust. How old is the new wife? Can your sales/margins support her until her death when you would then take over all shares and not owe anyone? This question should not be solely answered by an attorney. I would suggest you contact "leaderswithoutlimits" search youtube and listen to his information.. he has been through very similar issues and worse. He has very good advise on how to tie in estate planning and fair and equitable transfer of family business. Good Luck, my brother and I are in the same boat....Dad is 73, and we have been together since 1977. Its not business I worry about, its the funeral. Businesses are built and bankrupted overnight, dads are known for a lifetime. Just some other thoughts. Stay.

I think you should stick it out with your father's co. But you do need to comunicate with him better about the transition. If, when he passes away you don't like how things turned out, that would be the time to break out on your own, you wouldn't be competing against him and eliminate the guilt and the existing customers would be more receptive of going over to you. You never mentioned whether you had siblings involved with the company and that could be a big factor in your decision as well.

Colpaw Said: If I do leave one of the issues I must deal with is the guilt (the other catholics on the forum should understand this) for leaving my father.

What are your Fathers wishes regarding retirement? Is he looking for a lump sum as a in a purchase price or would he be open to a monthly pension type payout and still retain some share of the company? If I were in that situation I would seek a majority share, say 60% and offer him a monthly pension of say $5000.00 per month which would draw down on his equity ownership of perhaps 2% a year. This would enable you to purchase the company with no money down and at a cost of $5000.00 per month for 20 years. This would offer your Father a secure retirement income over the next 20 years plus the feeling of not losing complete control of something he has put his life into. Options could be drawn up for early payout or payment to his wife if she desired if he died before the 20 years were up.

Why have you thought of starting your own business over the past few years? Why wouldn't you want to continue the business name that YOU have helped build?

I've seen businesses separate where client's/employees just complicate things because they don't do what you expect. If you leave that business, he could sell to somebody else, who will be your competition w/ your old phone number.

One thing to consider, and it could vary by state or personal connections, but in Illinois new roofing business start in the workers comp pool at 52%. Not fun.