No entrepreneur sets out to start a business while thinking the whole time about what will happen to it when they die or are unable to continue working. As Brad Heath, Founder & CEO of VirTex said, and that’s the same mindset that many business owners have. There are too many other things to think about when trying to get a business off the ground. And, once it is up and running the entrepreneur has too many different hats to wear. There are plenty of things that are demanding their attention that need to be addressed immediately. That means other tasks get put on the back burner and unfortunately, succession planning is usually one of them.
The business owners or executives think putting off planning is not a big deal, and often don’t realize that it’s missing until an emergency happens or they are ready to sell their business And, unfortunately, there isn’t often advanced warning when things are about to go wrong, making a bad situation even worse.
Meet Brad Heath, Founder & CEO of VirTex
Back in 1999, with 15 years of experience working in the fields of process engineering, manufacturing operations, and supply chain, Brad Heath founded VirTex. Looking back, he describes the business in the beginning as “an outsourcing company where we bought parts and had excess capacity with other suppliers so that I would basically buy time on their line and get the work done for people.” Over the years, with hard work and staying close to his customers, Brad grew the company into one of the largest manufacturing companies in Austin, Texas.
Today, VirTex has seven facilities including locations in Menomonee Falls, Wisconsin and Juarez, Mexico. They work with industries including automotive, medical, industrial, aerospace and defense. This year VirTex is expected to be a $170 million company and they were listed in the 2018-2019 Fastest Growing Companies list in the Austin Business Journal. They focus on doing business on a regional or local level while providing their customers with the benefit of their Partnership Network.
Business growth is always good, but as they say, with great power comes great responsibility.
Brad and VirTex lacked a real succession plan
After just five short years in operation, VirTex had grown into a $10 million company with around 40 employees. The business was running smoothly. Brad had worked hard to set the business up by putting the right people in the right places. The company had tracking metrics in place and things were going well.
Brad’s focus was no longer just on the day to day operations of the company. While he did still deal with customers and employees, as every CEO does, his role had risen to a higher level. He focused his attention on developing a strategy and plan for continued growth for the company. This led him to join a local CEO group where a single presentation on succession planning got him thinking differently and a lot of ideas rolling around in his head.
According to Brad, “Prior to that, other than looking at life insurance to cover the bank lines and that sort of stuff, we didn’t really worry about much of a succession plan. Because at that point I was 40 years old and bulletproof.”
But, the presentation led to a conversation with the presenter, Jim Erben. Jim started to ask Brad questions about what would happen to his business and family if he were to be hit by a bus tomorrow. This was all it took. “Bulletproof” Brad realized that it was time to start packing his parachute. It was time for a plan. So, even though he wasn’t out looking for the information, this was the beginning of Brad’s succession planning story. In a way, it fell into his lap.
Why Brad moved forward with succession planning
At this point in the company, Brad said, “I was personally guaranteeing around $10 million worth of debt. So, you don’t sleep super well like that.” This situation became even more apparent after Brad and his wife, Sareta, sat down with Jim to start the succession planning process. They had never really considered what would happen with the company if something had happened to him.
Succession planning isn’t always about achieving peace of mind for yourself, sometimes it’s about creating peace of mind for your loved ones. Brad admitted that “We had never really thought about the fact that she might have to sell the company to cover the estate taxes.” in the event that something happened to him. This is when they knew that they needed to put a plan in place.
The concerns of a business owner and husband
This brought up new concerns for both Brad and his wife. “The biggest concerns were on things like, what happens to the company that I put a significant amount of blood, sweat, and money into? And, what could keep [the business] rolling in the event that something happens so that my wife didn’t have to go ahead and basically fire sale the company to cover taxes and not see the benefit of it.”
Brad’s concerns were two-fold and the same ones that most business owners are worried about and lose sleep over:
- What happens to the company that I invested so much into if something happens to me?
- How will my family be impacted if the company and I are not able to provide for them?
Succession planning is about more than just how a company continues to operate after the owner or key partner is gone. It’s about gaining peace of mind for those that would be impacted by the loss, both on a professional and personal level.
Building a succession plan
The succession planning process started with a meeting that involved thinking through different scenarios. The one that Brad remembers most is—”What happens on Day 1 when you get hit by a bus?”. For a company without a plan in place, this is a tough question to answer. It was important that Brad and VirTex put a plan in place so if something did happen to him, the right people would be in the right place to put the succession plan into motion.
This first step looks different for every business. For VirTex, Brad needed to choose a person that would step in to execute the plan. The first task on this individual’s list if something happens to Brad is to send home the receptionist with pay for a week. While this might seem like a surprising first step, it’s an important one to Brad and his company. It makes the process easier by relieving a person that would have a difficult time dealing with the tasks at hand and putting the right people in place to act and speak on behalf of the company.
This lesson hit home for Brad shortly after creating this piece of the plan. There was a company he knew of personally that acquired another company and four days later the owner of that company died. The new company had to step in and handle all the communication, which would have been a difficult task to undertake except for the fact that they had procedures in place to rely on throughout the days that followed. Brad admits that it “doesn’t happen often. But, it happens, so having those details in the plan was important.”
What was the planning process like?
The planning process was a pretty quick and painless one for Brad and VirTex. According to him, “Writing a check to the insurance company was probably the worst day of the process.” While VirTex had already had individual policies in place they wanted to secure a group policy that would be able to pay for the person that would be running things for him so it would go smoothly.
He found that the best part of the process was how quickly it went so he could get back to business as usual. Many business owners find themselves overwhelmed and confused about the next steps in this process. However, Brad had someone to lead him through from start to finish.
Since VirTex is a company that is continuing to grow and expand, Brad sits down with this advisor quarterly to make sure everything is as it should be and to see if there are any updates that need to be made. Business owners that create a plan often fail to take the time to update it once it’s created. However, plans should be fluid and everchanging just like the companies that create them. As changes occur, you have to ensure to update your plan to continue to achieve your goals and cover your needs.
Why succession planning is so important
Succession planning is not something you do that really impacts your business today. It’s something that you put in place for all those eventualities that could possibly happen. It’s not unlike planning for other areas of your business. As Brad said, “We have plans for what happens in the event of an earthquake, flood or whatever, at one of our facilities. But, knock on wood, I’m never going to test it. We know what we’re going to do. We have to have the plans to report to our customers, but it’s one of those plans that we never want to use. And succession planning is kind of the same way.”
Succession planning brings up topics that are difficult for many business owners to face. However, it is important to realize that it will be much more difficult to face those situations without having a plan in place.
How VirTex has already benefited from planning
The succession planning that Brad and VirTex did, created more than just a plan to implement if something should happen to him. It put the right pieces, resources, and tools in place to help protect them in case of loss of key employees as well.
They have been able to take advantage of this several times including once when a key employee passed away. However, they were also able to use part of their plan when the company outgrew the abilities of a couple of its employees. VirTex was able to use the funds they had in place for a death benefit as a way of funding their severance packages. Without the steps they took as a result of creating a plan, none of this would have been possible.
Brad Heath’s advice to others
After going through the planning process and now having it incorporated into the regular planning of VirTex, Brad has some advice for others that are thinking about going through the process:
“I tell people to do it sooner rather than later for two reasons. The younger you are when you do it, the cheaper it’s going to be because the insurance that you have to put in place is going to be cheaper. And, you’re not going to have more time as you get more successful and busier. You’re going to have less.”
“Look at it both in terms of what it’s going to cost to do and what it cost not to do it. There’s a lot of things we buy insurance on. You could choose to not insure your car, but in the event that you have a wreck, you’re not going to have to have enough cash to buy a new car outright. You can choose a $20,000 deductible for healthcare. It just depends whether you’re going to need it or not. So, you’ve got to balance the cost out with the pieces of the business to see what really makes sense. But, doing something is better than doing nothing.”
What you would see today
CEOs, business owners, and entrepreneurs are generally focused on the bottom line. They have to be to run a successful company. This can be a stumbling block for many when it comes to creating a succession plan. They see the money leaving the accounts right now, with little to actually show for it at the moment. However, what businesses are paying for when putting a succession plan in place isn’t something to necessarily benefit them in that moment, but to protect going forward all they have worked so hard to create.
So, if you stopped into VirTex today would you see that it’s running differently in the day-to-day operations? No. Would you see the immediate impact that the succession planning made on Brad and his business? Probably not. Because the real value of the succession plan is in the unseen. It’s the better sleep that Brad gets at night knowing his family, the company he worked hard to build, his employees, and his customers will be ok if something were to happen to him tomorrow. It’s the freedom of his thoughts to focus his attention on continuing to grow his business, knowing that the investment is being protected. And, it’s the peace of mind that comes from knowing that his wife isn’t worried about all the financial “what ifs” that could have come along if something happened and there wasn’t a plan in place.