Photo of Bell Brothers Heating & Air, a small business creating a plan for succession.

Business succession planning in 6 steps

The year was 1955, and homeowners couldn’t imagine adjusting their furnace from across the room, let alone through a mobile app on their drive home.

Long before our everyday lives became digital, siblings Bob and Maurice Bell founded Bell Brothers, their heating and cooling business in Des Moines, Iowa.

Back then, the brothers simply followed the installation of natural gas lines throughout the city to build their business, converting furnaces from burning coal to gas. Today, everything about the business has changed. Bell Brothers employs 90 people working on vastly different equipment, and the company is in the hands of its second family of ownership, the Gassmanns (pictured above). Chuck Gassmann, 65, started working at Bell Brothers in 1995 and took over in 2011.

Last year, the company hit a staple milestone for small businesses everywhere: a business succession. His son, Jason Gassmann, 42, bought the company from him.

Though a business succession plan was always in place, Chuck says he needed an outside assist as his son gradually replaced him as CEO. “It’s something that most owners [only do] once or twice in their business lives, so you have to employ the right people,” he says.

A financial professional team of Steve Utsler and Don Laster worked closely with the Gassmanns during the business transition—“helping them build company value, through a step-by-step process,” Laster says.

Picture of Chuck and Jason Gassmann meeting with Don Laster, their Principal advisor.

Chuck Gassmann (left) and Jason (right) meet with Don Laster, a Principal® financial professional (middle).

Every succession looks different. But the financial professionals, who work for Principal, say that at its simplest, you can think of a business continuation plan in six basic steps:

1. Timing: Decide when to transition out.

This may seem like an obvious first step, but just 60% of small business owners have a succession plan in place.1 And some owners may not know when they want to retire—or may be reluctant to give up work that’s intertwined with their identity.

Chuck was ahead of the curve by anticipating his exit strategy the moment he bought his business, pinpointing his preferred retirement age.

Graphic stating that 60% of small business owners have a succession plan in place.

2. Price: Determine what your business is worth.

An informal business valuation is a popular starting point. It helps establish a value so that the succession plan can proceed in fair and realistic terms. It’s also useful for other reasons, such as determining how the value is distributed by shareholders, or as a basis for buying owners’ life insurance to help protect the business. Ultimately, it’s an estimate based on an analysis of the company’s financial position. It’s not a formal valuation to be submitted to the Internal Revenue Service, but it’s also far less expensive than a formal valuation.

Then keep valuations up to date. Chuck, for instance, doubled the value of Bell Brothers Heating and Air Conditioning in just eight years.

3. Successor: Identify a buyer.

Chuck was already working with his successor, who happened to be his son. Handing off to a family member or other key employee inside the company may reduce planning time for the transition, compared to a sale to an outside third party.

But Chuck didn’t assume from the start that Jason would be his buyer. He knew that within the decade he would either ensure Jason was ready to take the reins, or that he would find somebody else.

Jason grew into the business through a series of management roles. It wasn’t until 2015 that he became part of the formal succession plan. He was named president at the end of 2017.

If you don’t have someone in mind, a financial professional can help you identify key employees or explore other options.

4. Partners: Hire expertise outside your company.

A business succession strategy really is a “coordinated effort between the business owner and their tax professional, legal professional, and somebody that’s in this business, to help them through the process,” Utsler says.

Utsler and Laster routinely work with outside experts such as an attorney or CPA as part of a comprehensive team.

5. Path: Choose how to sell your business.

There are many business exit strategies (PDF), including a traditional sale or a gift. Who buys your business (and if you’re related to them) may influence whether you sell, gift, or maybe try a combination of the two.

Chuck sold to Jason on contract, similar to how he purchased the company from the Bell family. The trust between father and son helped enable this arrangement; the contract payments have essentially become Chuck’s retirement income.

But Chuck also structured the sale this way to help ensure Bell Brothers maintains its cashflow. The company is his legacy, and he wanted to provide his son the business stability to succeed. The incremental payments also help Chuck spread out the capital gains taxes.

6. Personnel: Consider key employees who will help power the company’s future.

If you care about the success of the business after you leave—which often is the case, especially in a sale to family—then retaining key employees is a crucial step. You don’t want to leave the new owner with a management team or staff riddled by departures.

An employee stock ownership plan (ESOP) or pay incentives linked to a required service period or specific date following the sale could help ensure a smooth transition. And life insurance for the business owner could help protect those promises made to key employees.

Jason already thinks about his own key employees, foreseeing his eventual succession plan. He assumes he has at most a 20-year “shelf life” as CEO.

“The second I become complacent, I’m going to find someone to get it away from me,” he says.

Every step in a carefully planned succession process connects back to the business as an asset within the owner’s portfolio, Utsler says. “All of these things contribute to the value and the stability of the business.”

What’s next?

1 The 2021 Principal Business Owner Insights survey is based on 1,011 online interviews conducted in January 2021 by Dynata.

This is not a paid advertisement. Chuck and Jason Gassmann are not affiliated with any company of the Principal Financial Group® and the views and opinions they express are their own.

The subject matter in this communication is provided with the understanding that Principal® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other financial professionals on all matters pertaining to legal, tax, or accounting obligations and requirements.

Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities offered through Principal Securities, Inc.,800-247-1737, member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392. Steve Utsler and Don Laster, Principal National and Principal Life Financial Representatives, Principal Securities Registered Representatives and Financial Advisors.