The Importance of Succession Planning with Lowell Mora

A lot of us want to have a successful and meaningful business. After many years in our business, we all want to ensure that the business we have worked hard to establish will carry on well if we retire. Succession planning is the key to ensuring a seamless transition and long-term success. But how? In this episode, I sit down with Lowell Mora, President of Impact CFO, who specializes in family- and privately-owned businesses. Lowell talks about the importance of planning for business transitions, especially as founders or business owners approach retirement, including finding suitable successors and maintaining business continuity. Tune in to learn more! --- Listen to the podcast here: Align Your Life and Thrive with Diamond Drip Welcome to Action’s Antidotes, your antidote to the mindset that keeps you settling for less. Today, I want to talk to you a little bit about succession planning. We’ve talked quite a bit about the process of starting up a business on this particular podcast, about what challenge you face on the come up, but then, what happens when you’re getting ready to retire and you want to make sure that the business is going to be in good hands and you want to make sure that your own wealth is going to be in good hands. To discuss this topic, I would like to introduce you to my guest today, Lowell Mora, fractional CFO, who specializes in working with a lot of these family-owned businesses around such issues. --- Lowell, welcome to the program. Thanks for having me. Appreciate you having me here today. Tell me a little bit about Impact CFO. Tell me a little about your story, what you do with your clients. At Impact CFO, I help primarily as a fractional CFO, which fractional means exactly as it sounds, I spend a portion of my time helping a business that may not be able to afford – it typically can’t afford a full time CFO. So my practice focuses primarily in on the family-owned business in the small to midmarket that is looking towards a transition, either to another family member or to an external exit to maximize the wealth of the family and the value of the business. Now, when you say businesses that can’t quite afford, say, a full-time CFO, what’s a general size? What number of employees is that typical – So the typical, most of us finance guys talk in dollars, but in employees, it’s typically employee levels of 25 to 100, 150. Again, it depends on the complexity of the business as well. So, in dollars, we typically talk somewhere around $5 million in sales, up to $50 million. Now, I’ve worked with smaller and I’ve worked with bigger but that’s the sweet spot. And so you’ve encountered a lot of these family-owned businesses that have gotten to this level. You said like $5, $25 million annually. I assume it means, right? So, what do you notice in some of these family-owned businesses that get to that level? Do you notice any kind of common thread in the type of people that you work with and the type of founders who are in the situation about who they are, what they’ve done to get to where they’re at? Yeah. Typically, in my practice, a lot of people out there is values based. So I look to work with people that share the same values as me, which are pretty basic, which is a high level of integrity, strong, hard work ethic.Share on X A lot of what I do is in the manufacturing, industrials, industrial products, industrial equipment. I also work with services, business services, and IT providers and things like that but, typically, it’s a business of an entrepreneur and they’re overwhelmingly, today in our world, they’re overwhelmingly male, and they’ve gotten to a point where they have a successful business and can support them but they don’t necessarily have a natural heir or successor. In a lot of cases, they don’t know what to do with that. And what typically happens, and it’s common, is everything in that business runs through that one person and it’s kind of that hub and spoke mentality and it’s not intentional but that makes it very risky if somebody gets sick or something bad happens to them. Yeah. Yeah, a that’s a risky place to be in no matter what kind of business you’re in. People talk about the idea of redundancy or even if you want to take a vacation and not have to hop on calls every day just to check in with your team. So, interesting, the other thing that I’m seeing is that the people that are getting a little bit more towards retirement, they get so much of their identity through the business that they run that they can’t imagine them not being a part of it so it inhibits them looking at the succession planning and contingency and it’s kind of a double edged sword because then what happens is people have been somewhat successful and they say, “Well, I’m running this business,” and then, “Well, but I wanna go to Florida for four to six months, but I still but I still wanna be running this business,” so they take their foot off the accelerator and that has a way of diminishing the value of the business because there’s not a focus on growth or cost savings and because it’s running all through this one person. They haven’t built up the other people – make those, so you haven’t built up, say, a second in command or even an executive team to say, “Okay, when I’m not able to put on the accelerator myself, you’re empowered to understand the business, make those decisions, etc.” It’s kind of an endemic in our society. We have huge companies and we need the Proctor and Gambles and the Unilevers and the big companies like that, but the life blood of our country is small in size, family-owned businesses and a staggering statistic is that nearly 50 percent of all family owned businesses end up in bankruptcy within two years of the death of the founder or the owner. To me, that’s staggering and really what’s happening is it’s a lack of planning for scenario and it’s devastating not only to the family that owns it, it destroys their wealth, but then I think about all the other stakeholders in the business, all the employees, their families, customers, vendors, all those things and it’s just something that I really want to focus on with my practice. So take me a little bit through the mindset of what’s going on in, say, a typical, say, 60-year-old founder that’s looking at their retirement and trying to figure out what to do, maybe hasn’t thought about it because he’s been buried in work for so long. What’s going on in his mind and what can be done? Yeah. So the first thing that’s sometimes difficult is to get their attention and to say, “Hey, we really need to look at this,” because they would typically say, I use the kind of the shock jock mentality of, “Well, what happens if you get hit by a bus?” A 60-year-old or a 70-year-old, “Well, we’re screwed.” I say, “Well, you’re 60 or 70, the reality is we all have a shelf life,” and then they’ll typically say, “Yeah, but my family will be okay.” Well, that’s because you have life insurance on yourself and they’ll be okay, but then, all of a sudden, this person that was such a big part of your family is gone. Now, the burden of running this business that runs through one person falls onto your spouse or your kids and they don’t know how to do it. It’s sort of they have to be ready for the wakeup call that you’re not immortal and there’s an interesting dynamic going on is that I’m in my mid-50s and I love what I’m doing and I want to do it for a very long time but if I stop doing it tomorrow, I would have 800 things on my list of things to do. The people that are a bit older, in their 60s and 70s, so much of their identity is tied up in that business that they’re not willing to let that go. So, once we get their attention, it’s pretty fun and easy, because you say, okay, the first thing is, have you talked to your other family? Have you talked to your children? Have you talked to other people in your family that might want to take the business over? And if there is somebody that’s interested, then you put a plan in place to get that succession plan going over a period of time. It doesn’t just take six months or a year, it takes years. Yeah, usually, it’s like a five-year process. About five years. And the other really important thing to do is get a good valuation of the business. So a lot of times, family-owned businesses will run a lot of their personal and household expenses through the business. When you want to get a good valuation of the business, you want to make it sort of clean and that’s a hard thing to do. So, typically, I’ll come in and I’ll say to a business, “Hey, once we get engaged, who’s doing your accounting?” Because what my offer in my practice is that upper level senior executive consultation, basically once we get a set of financial statements, we go from there. Do you have a clerical person who does it? As long as you’re recording the transactions correctly, I can work with it. There’s a lot of firms out there that are very cookie cutter and say, “You have to use this system and you have to use that system,” without getting too deep in the weeds. In my career, I’ve worked in every system, from QuickBooks to SAP, and SAP is the biggest one out there. So I say I’m going to customize what I do to you, so I say, “Hey, do you need outsource bookkeeping help?” I work with a bunch of different firms of all sizes and flavors. We can get them to do your bookkeeping. Then we get some financials that make sense and we’re able to build the plan of what is your plan? Do you want to maximize profitability over the next five years and turn it over to your family or do you want to maximize profitability without growth and then sell the business? Do we want to have a growth mentality? Because, in the end, the way that you value a business is pretty straightforward....