Thermal Spray Succession Planning

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The other day, I was having a discussion with my insurance agent about my automobile insurance policy and he kept harping about business succession planning. I knew Joe always wanted to sell me more insurance but what does that have to do with business succession planning I thought. Being trained in thermal spray, I could not see the connection between insurance and business succession planning and by the way, I thought the meeting was going to be about my automobile insurance and not about business succession planning whatever that may be (LOL). What I learnt that day opened my eyes in terms of what small thermal spray coatings business owners need to think about when it comes to business succession planning. Basically, what Joe hinted upon is that while the larger thermal spray shops may have engineers, salesmen, production personnel and administrators, usually in the smaller shops the owner is the sole heart of the business; more like flying in a single engine plane. When that engine goes, so does the plane. So what happens when the owner of a small mom and pop thermal spray coatings shop dies? The survivor can either sell the business for peanuts or keep it going for a few more years and recover the proper price for the business by selling it later. This latter is what is called business succession planning. And by the way how could Joe, the insurance agent, help an owner with business succession planning not knowing the first word of thermal spray.

Well, the way I understood it is that basically you take what it will take salary wise to hire a top notch thermal spray engineer(s) with sufficient business skills, adjust for some inflation and calculate what it will cost to keep the engineer(s) employed for three to five years. In that time frame, the survivor of the departed can proceed to look for potential buyers of the thermal spray business who will have to pay the proper market value rather than pick up the business for fire sale prices. The survivor may choose to keep the business going and not sell it either, if it continues to make profit and the new hires can be kept employed for the then foreseeable future. The amount of capital that will be needed to finance this transition after the death of the original owner can be obtained by a good life insurance policy taken out by the owner. I then understood where the insurance agent comes in to play in the whole business succession planning scenario. This may sound like too much planning ahead, but consider the following case that has happened in real life right in front of my eyes. Felix was an immigrant in the United States that had come from Peru. After holding several menial jobs, he decided to start a business. It just so happens that he opened up a machine shop as opposed to a thermal spray entity. Being young, he gave his business all the blood, sweat and tears that every small business owner must. I used to outsource a lot of overload work to him. His shop comprised of Felix, an assistant and his wife that kept the books. Everything seemed to go fairly well, until one Monday morning after a three day weekend, I tried to call Felix chasing on some orders. His wife was in tears when she picked up the phone. I felt bad and told her not to take my call that seriously; after all, I was going to just check on the status of some parts and that the world was not coming to an end. She said “Mine did.” And she told me her husband died suddenly of an aneurism. There was no life insurance and she was confused and in disarray. She did not know what to do with the business and it eventually folded up within days. This situation could have been easily prevented had Felix listened to his insurance agent. Guess what I did immediately? I got more life insurance. Of course there is a certain cost to carrying life insurance but the cost of not carrying it when calamity strikes is even more. Entire treatises are now being written on this subject of business succession planning and rightfully so, because why should a business that was built from the ground up after spending lots of money an time simply die with the death of the owner?