On the website for her Hudson, Ohio, integrated marketing agency, CEO Jan Gusich offers this description of what she does: “Ensure the long-term sustainability of the organization through non-stop innovation.”
But if the 62-employee agency AKHIA is still doling out public relations advice and dreaming up marketing schemes after the 56-year-old Ms. Gusich retires — whenever that day eventually comes — it may be in part because she also considered it her job to ensure the organization’s long-term sustainability through careful succession planning.
Ms. Gusich, who co-founded the business in 1996 with a colleague when the agency that had employed them closed, brought in the Tobin Group to help think through her company’s future. The Pittsburgh consulting firm was founded five years ago by two guys who’d each already sold their own businesses, and knew other people faced similar issues.
In the past three years alone, Karl Skutski and David Tobin say, they’ve worked with more than 40 companies on exit plan and succession strategies, focusing mainly on advertising, marketing and PR firms but also dealing with other professional service businesses.
Such firms can be challenging to sell to a third party because the assets are often so intangible. Instead of real estate holdings or patented manufacturing techniques, marketing firms tends to have relationships with clients who trust the skills of certain individuals.
And selling to trusted employees can be an option, but most of those don’t have a pile of cash on hand to buy the business outright.
“It’s harder to get out of a business than it is to start a business,” said Mr. Skutski, 66, who exited his own Downtown public relations agency in 2004, after at least one false start. After considering an offer in the mid-1990s to sell to a large national company but deciding it put most of the risk on him, he ended up working out a plan to sell to members of his team, a process that took several years and detailed financial planning.
For his part, Mr. Tobin, 54, lived through the issues that arose when his 52-year-old father died on a skiing trip and his mother had to cope with legal agreements that didn’t make it clear how to value the advertising business he co-owned.
Mr. Tobin exited the PT Marketing Group, since renamed PT Service Group, by selling to his partners in 2004. In that firm, he gained a lot of experience in business succession planning and advising small business owners.
The two men met several years ago when another acquaintance, public relations executive Dick Roberts, invited them to a dinner with some other people to discuss the future of his North Shore agency. Mr. Tobin and Mr. Skutski seemed to be a good fit. “I knew a little bit, and he knew a lot more,” said Mr. Skutski, who also teaches classes at Duquesne University and co-founded a nonprofit to send computers to Ukraine.
Both liked consulting but wanted the freedom to choose how much they work and where. In addition to taking on consulting assignments with Mr. Skutski, Mr. Tobin also works with Luttner Financial Group, Downtown.
Perhaps because the baby boom generation is nearing retirement age, or because the recession tied up financing and made it hard for businesses to change hands, the partners say they’ve found plenty of companies looking for help. An email survey sent to 400 to 500 firms triggered 90 responses. Maybe 10 percent to 20 percent had plans in place.
Business owners can get advice from attorneys, accountants, and merger and acquisition brokers, among others. The partners hope their system of assessing the sale value of a business and then helping owners figure out how to get that number where they need it to be sets them apart.
For example, small business owners often don’t pay themselves a fair salary because they’re putting everything back into the company. That can make profits seem greater and give them an inflated expectation for what someone will pay.
In the cases of two California firms they’ve worked with, one has $6 million in revenue but is losing $300,000 a year and can’t find a buyer. The second has $1.5 million in revenue but is showing a $400,000 profit after paying the owner a fair market salary, so it’s more valuable to potential acquirers.
Options for exit plans for small to midsize businesses range from employee stock ownership plans to mergers to various types of outright sales, or even to the owner retaining control but using incentives to reward the management team for running the business.
Among the keys is starting early. It can take years to get the numbers to the right place or to bring employees into strategic plans.
Ms. Gusich said when she hit her 50s, she started thinking about how important it was to give her employees a secure place to work. “I really wanted to make sure I was creating this organization that would live beyond me,” she said. “Because it’s a great organization.”
Dan Rothschild, founder and CEO of the Strip District architecture firm Rothschild Doyno Collaborative, responded to a cold call from the Tobin Group a few years ago. The architectural firm has since moved from two owners to five, a complicated process that involved brand assessment to insurance risk review and financial forecasting.
At 56, Mr. Rothschild said he’s not going anywhere soon but noted, “It’s never too early to start thinking about this stuff.”
Teresa F. Lindeman: email@example.com or at 412-263-2018.
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