Over nearly two decades, the Kolewaskis have succeeded in turning a small hardware store in Cold Lake, Alta., into a thriving multimillion-dollar enterprise. But the real accomplishment has been the seamless ownership transition that is nearing completion.
Jerry Kolewaski and his wife Linda are in the last stages of handing over control of the family's RONA home renovation franchise to their son Jay, a long-time partner in the business who has been in effective charge of the store for two years.
The issue of succession has been top of mind since Jerry lost his job as a senior manager with the provincial government and refocused the family on retailing.
From the time he settled on buying a small hardware store in Cold Lake in 1992, his son was involved in the succession plan, which the elder Kolewaski admits is a few years behind schedule because of a switch from the Home Hardware to RONA banner and, more recently, the expansion of the franchise to a location that is double the size.
The final transition hurdle for the elder Kolewaskis was a four-month stay in Florida two winters ago. "That was probably the biggest test for him because we weren't around," Jerry said. "He learned from that and we learned that yes, he's ready."
The parents have "backed off tremendously" since then and Jerry's main role today is overseeing the construction of the new 30,000-square-foot store that is set to open this June. "The reason I am here today and not in Florida is that we are building a $6.4-million building," he said.
In the careful and methodical way that they are managing the transition of their expanding retail business, the Kolewaskis are dream owners for franchise operators such as Rona Inc. - or Canadian Tire and Tim Hortons, for that matter.
"This is where a lot of [Rona]dealers are envious because we have a very good plan and we have a family member who is willing" to take over the business, Jerry said, adding that a similar family transition hasn't gone so well with a fellow franchise owner in the Rona network. "He has tried it, and he has ended up taking the full thing back."
The small business succession statistics are grim: just one-third of Canadian family enterprises make it from the first generation to the second (and just 15 per cent make it to the third), and more than half do not have a formal succession plan. These sobering numbers, and the reality that the majority of its 400 franchisees are aging boomers, prompted Boucherville, Que.-based Rona Inc. to create a succession-planning program last year. Rona hopes to make it easier for family members to take over the stores or to identify outside buyers in cases where no heir has stepped forward.
"Half or 60 per cent of our business owners are probably more than 50 years old, and out of these a good ratio don't have succession planning," said Jean-Luc Meunier, senior vice-president of affiliate dealer-owner network development with the national retailer.
Rona operates about 200 corporately owned stores but the retailer is intent on supporting and nurturing its network of franchise owners, many of whom have been with the company since the beginning. Rona's corporate office will offer advisory help and formal approval in cases such as the Kolewaskis as well as training and mentoring of the next generation, legal consultation and financing, Mr. Meunier said. Based on its competitive research, the creation of the Rona program makes it one of the leaders in this area in the country, it said.
Franchise owners are at least as motivated as Rona to find worthy successors, Mr. Meunier said. "You spend your life to build the business, you don't want to see that disappearing at the end of the day," he said.
Because many of the franchisees do not have a family member ready or willing to take over, the retailer has also identified entrepreneurial talent within its employee base. "A lot of the guys within our system would like to have access to property but they don't know where to start," he said. "It will help us out to [carry out]our network overhaul."
As daunting as it may be to identify a successor and sell a Rona or Tims, these businesses also have well-established support systems and easy-to-value properties, noted Michael Nairne, president of Tacita Capital Inc. of Toronto, which advises high-net-worth families and small business owners.
Mr. Nairne, who has advised Canadian Tire dealers, among others, on succession issues, said family businesses can be fraught with such problems as reluctant founders, sibling rivalries and complex family politics.
Owners of a multimillion-dollar business might also opt for a strategic buyer within their industry, he said, though timing with regard to the economy is critical.
"We were working with a family that sold out in early 2007, that was great timing for them," he said of a sale to a strategic buyer. "A year and a half later that sale would have been off the table."
In the end, however, succession planning takes a back seat to operations, Mr. Nairne said. "Unfortunately, most business owners don't think of leaving. The urgent and unimportant dominates everybody's calendars. The strategic and very important gets short shrift."
Successful exit plan
Time to sell your multimillion-dollar business? Take these steps.
It could take up to five years to put a proper plan in place. This is the time to assemble a team of advisers such as accountants, bankers and lawyers needed to create your succession plan. Communication with your successor(s) is important in order that they understand their roles in the business and collaborate in the transition process.
What it should do
A good plan will help you make decisions about ownership, maximizing value and ultimate tax strategies.
What it should contain
Goals and objectives. Retirement and post-business ownership goals.
Decision making. Involvement of family, a conflict resolution mechanism for family, partners and employees and selection of a successor.
Training. What core competencies will your successor need?
Estate planning. Create a financial plan and determine the tax implication of a sale.
Contingency planning . What if you die or get sick tomorrow?
Corporate structure and transfer methods. What are your options as a sole proprietor, partner or owner of a corporation? Are you going to transfer or sell the business to your successor?
Business valuation. Determine the fair market value of the business.
Source: Government of Canada. http://www.canadabusiness.ca/eng/guide/2654/