The Succession Plan

The Succession Plan | Joe Sevart | November 2019

Joe Sevart is ready to have some wine, tap his foot to some country music on the deck and spend more time with his wife and family at home, in Napa Valley and especially under the sun in Mexico. After years of investing in his shop and team members, Sevart is ready to invest in himself—as of September 30, Sevart is retired—at least on the surface—from running I-70 Auto Service (Kansas City, Mo.).

Sevart is one of the dwindling owners who not only took over managing the family shop but is able to pass it on within the family, as well; on October 1 his nephew, Tyler, assumed ownership of I-70. 

“When I walk away, Tyler will be poised to run a smooth shop,” he says, “and I will be the majority owner for another three years.”

Sevart won’t be completely out of the picture, however; he plans to run payroll, QuickBooks and contribute to marketing as Tyler buys him out over a three-year period. In 2022, he’ll be completely divested of the shop he helped grow to a $1.3-million-per-year business.

An Unusual Transition

In 2010, Sevart joined RLO Training, a well-known and industry-leading impact group designed to help shop owners achieve personal and professional well-being and fulfillment.

“That’s where I learned to become a business owner,” Sevart says, adding that it was his son (also involved in the family business) and nephew who pushed him to reach for more almost a decade ago.

One day, RLO Training coach John Wafler asked Sevart how he envisioned transitioning to retirement, and what would he do with his shop?

“I came up with an exit plan different than anyone you’ve ever talked to, and people told me I was crazy,” he says.

The plan is this: over several years, Tyler has been working via sweat equity to slowly gain shares of the shop. (This way, “he wouldn’t have to produce a huge sum of money right away,” Sevart says.) Sevart hired a financial planner to help put a transition plan together, and they’re now into the fourth year of that plan. Each year, Sevart remits a percentage of the net profit to Tyler to build the principal in order to purchase the shop from his uncle, who will, in turn, re-invest the money in I-70 via shares on his way out.

Simple, right?

Sevart knew he wanted to find a number agreeable to everyone, but the traditional methods—net profit valuation, taking a loan from a bank, etc.—didn’t appeal to him. He didn’t want Tyler to take on a huge debt and was determined to find another way.

“I looked at what I owed, what my income is, what we have in the bank and investments, what we’ll be able to collect from Tyler on the business, and we came up with a calculation about what my wife and I need to live,” Sevart says.

“That’s how we reached it, and the people involved told me, ‘You’re nuts!’” he adds. “But it allows Tyler to be successful and for us to live a simple life and be able to do things we want to do.”

Retire on Your Own Terms

For Sevart, finding the magic number was based more on philosophy than profit.

“Correct—it had nothing to do with profit,” he says.

“I want Tyler to be successful and for him to be able to pass it on tothe fourth generation. His success is our rent money every month and we can live off that without dipping into our retirement and investments.”

Sevart and his wife calculated what they’d need to live (and enjoy themselves a bit) every month and took into account everything they could—inflation, social security, investments, etc.—and did that up to 90 years old.

You might call it informed napkin math. That’s the best way to describe Sevart’s retirement formula.

“Right,” he says with a laugh, “you’re passing something on; if you’re financially sound, why take a bunch of money from your daughter or son? We can’t use it anyway once we’re gone!”

Sevart knows exactly how he’s going to spend his retirement: investing in others, again.

“Here’s what I’m doing with my life: I’m going to invest in others. Three days per week I’m going to invest in other people. One day I’m going to work at an inner-city elementary school and do whatever the school needs. Another day I’m going to walk dogs, listening to podcasts and getting some exercise. Another day I’ll volunteer at a homeless shelter or preschool. And one day per week from home my task will be to pay I-70’s bills, take care of QuickBooks, and all that will all be done off-site, in my PJs, maybe with a glass of wine.”

Now that sounds like a great three years, with many more to come. 

How to Start a Succession Plan

Like most difficult jobs, the hardest part of forming a succession plan is simply taking the first few steps. According to Inc. magazine, there are three simple steps to begin looking ahead to retirement.

Organize financial documents. You’re going to need paperwork to prove to all vested parties that you’re serious about your succession plan and that you’ve got the paperwork to prove your business is viable. Sort and organize all pertinent paperwork such as inventory, valuation data, tax returns and certainly your most up-to-date financial records. Many management systems have software to help you compile all this into one neat bundle. Keeping your most important documents together also helps family members or executors under more dire circumstances.

Establish buy-sell agreements (BSAs). BSAs are legally binding contracts used to designate portions of the business if the owner passes away, gets sick or shows interest selling his or her share. They help formalize information such as a company’s sales price, the value of shares and also spell out the foundation of who can and cannot buy the company, helping reduce the risk of conflagrations with family members or partners who may be more interested in their future than that of the business.

Identify potential successors. It takes time, stamina and a leap of faith to identify the one or few individuals who could successfully shepherd your business into the future. By identifying the right individuals, you’ll have a framework for evaluating and identifying the key skills and attributes you want in your successor. Because when it’s all said and done, it’s going to be their business—not yours—just like you planned.