The casual industry has been in the process of turning over ownership to the next generation for some time now. But has the pandemic changed anything in that process?
Terry and Lee Resnick, twin brothers and partners in Resnick Succession Group, have helped many casual retailers with succession planning over the years, as they work with a number of the different industries across the country.
Terry says the pandemic made people more aware of the importance of succession planning.
“You likely never would have predicted the pandemic a year — or even 10 years — before it happened,” he explains. “The pandemic made people more aware that this is something they need to get to sooner rather than later.”
He adds that most people held off on business transitions between 2020 and now as they tried to stay afloat. However, with the pandemic putting things into perspective, he encourages retailers who are thinking about it to get started.
The length of time it takes to set up a plan varies by retailer, according to Terry, because there are a number of variables involved.
“If someone really wants to get a succession plan done, and the client and the advisory team are working in concert you could establish a plan in two months. But it takes a little while because there are different practices that need to become involved — from a lawyer to a succession planning firm like ours, valuation specialists and more.”
One thing that has changed in regard to succession planning over the past few years is the current tax law that came about in 2017 related to the estate and gift tax. Terry says this directly impacts a lot of business owners when they’re transitioning business interests during their lifetime or at death, or a combination of the two.
The amount of the assets that can be sheltered from federal estate and gift taxes right now is the highest in our country’s history, he adds, but that’s going to be cut approximately in half Jan. 1, 2026.
“From a tax standpoint, there are certainly some things business owners should be aware of,” Terry says. “But, in general, I always encourage people to be proactive with their planning. Don’t set this aside, because many times you set it aside and then you never get to it. If and when something happens to a business owner, it’s going to have a dramatic effect on the long-term success of the company.”
As for the casual industry specifically, Terry says he’s seen a lack of succession planning that could lead to retailers closing their doors. He says the ones who fail are those who don’t have a plan in place or haven’t kept existing planning current.
“If business owners don’t have a next generation or other family members to take over, many of them think they can just sell the company to their employees,” Terry explains. “But what typically happens is, most employees don’t have the financial wherewithal to buy the business. And a lot of times, the owners are just stuck or financing their own buyout.
“Then they end up sometimes being forced to liquidate, which is worse because you’re getting the lowest dollar value to sell a business in that way,” he continues. “Many business owners just assume they’ll get to a certain age, they’ll be able to easily sell their business and selling a business is a lot more difficult than people realize.”
As a business owner, he explains that if you’re deriving X number of dollars a year in income and other cash flow that the business is providing and you sell the business for Y, once the taxes are paid and the other costs are incurred, you have to decide if what’s left is going to maintain the standard of living that one has been accustomed to.
“Will that be the same cash flow that I’ve been used to getting?” Terry says. “For most business owners it’s not even close to what they’re used to getting. So that means that other planning has to be done, above and beyond just to sell the business. You need really big numbers — especially in a low-interest-rate environment — to derive a decent cash flow.”
Not to mention, health benefits and all other perks these business owners once had go away with the business. Once you sell a business, you’re on your own.
Many in the casual industry love what they do, but it’s easy to forget to make a succession plan in the mix of everything. Terry’s advice is to start succession planning now, even if you’re not planning to pass the business over for a while. It could make all the difference.
