In today’s highly competitive marketplace, self-storage companies that continuously cultivate the next generation of leadership enjoy a business advantage. Every operation needs a good succession plan. It’s critical to ensure the protection of the company’s future for its owners, investors, employees and partners.
Unfortunately, real estate companies are often short-lived compared to those in other industries. More often than not, the leadership isn’t prepared for succession and the company doesn’t survive past the first generation. Small firms in particular put a lot at risk if they don’t have a plan in place.
A succession plan isn’t just about knowing what to do in the case of an untimely death. It prepares a business for the loss of a senior executive in the event of illness, termination, retirement or other changes in leadership that can jolt a company. Small to mid-sized privately held firms often find the planning process to be beneficial for other reasons, too. An embedded plan forces the organization to consider leadership changes, organizational capabilities, technology, employees, investment horizons and its overall investment portfolio.
A well-defined succession plan will pay dividends sooner than you think. Below are three steps self-storage owners can take to prepare for company transitions—ones that that will provide benefits right away.
Discuss the Plan
Leadership has a greater impact on the success or failure of your succession plan and the longevity of your business than anything else. Talking with the next generation of company leaders about the plan will allow them to provide useful insight as to what they feel will be effective when the plan is set in motion. Before the discussion, establish a general outline and some deal points that are important to the current leadership.
You’ll undoubtedly see their true colors after including future leaders in this discussion. Hopefully, it’ll add to their sense of company ownership and create a greater overall quality of operation. They should see this as an opportunity to be part of the “inner circle.” If the outcome isn’t favorable, it’s better to know now so you can make adjustments.
Structure the Plan
No matter how simple or complex your company configuration may be, the succession plan is going to be more complicated than you think. Depending on the goals and objectives of current leadership, you’ll need to have in-depth conversations about how you structure and implement the plan when the time is right. During these discussions, you’ll learn more about what motivates your key personnel. These insights will lead to new ideas and create value for your company well in advance of any transition.
It’s critical to have your accountant and lawyer involved in the conversation from day one so they can accurately draft and structure your plan. They may have valuable insight as to how other companies have completed the task—successfully or otherwise.
They may also offer advice as to how to achieve the goals of the current leadership by using techniques such as a “partnership freeze.” This creates two classes of interest—preferred and common—on the existing real estate partnerships or LLC. The senior generation takes back preferred interest on its holdings, which allows its members to keep the cash flow for their lifetime. Any upside on the holdings now belongs to the common interest, which you typically see transferred to the children, trusts or next generation of leadership.
The earlier a succession plan is put into place the better. But the longevity of the current leadership is another asset in real estate, and official transitioning will often lag more than you think.
Test the Plan
As you move through the process of creating your succession plan, build in some flexibility. Things change. To ensure your vision is carried out, you need to allow the next generation of leaders to make decisions appropriate for their current market or situation.
Conversations with up-and-coming executives help them think about career planning even as current leaders consider their own future potential. You might allow them to head up major a project or division so you can see how they work and their ability to execute. Whether done as part of an annual review or more frequently, succession planning and the ability to execute on the plan is critical to success.
As self-storage owners and investors continue to enjoy the benefits of the strong market fundamentals, it’s never too early to prepare for the future. The companies that continuously cultivate the next generation of leadership enjoy a business advantage. A well-thought-out and structured succession plan will not only ensure your company is successful for years to come, the immediate benefits may surprise you.
Ben Vestal is president of the Argus Self Storage Sales Network, a national network of real estate brokers who specialize in self-storage. Argus provides brokerage, consulting and marketing services to self-storage buyers and sellers and operates SelfStorage.com, a marketing medium and information resource for facility owners. It also offers panel discussions in which brokers from around the country share their insights on self-storage market fundamentals and economic trends in their regions. To access recordings, visit www.argus-selfstorage.com/presentations.html. For more information, call 800.55.STORE; e-mail [email protected].
