Planning for Succession With Gary Pittsford

In 2020, Hardware Retailing is talking about succession planning in each issue of the magazine. To get the series started, we consulted with Gary Pittsford, president and CEO of Castle Wealth Advisors, a financial advisory firm that has been guiding independent home improvement retailers through the succession planning process for more than 40 years.

Read the conversation with Pittsford below, and click here for the first installment of the series.

Hardware Retailing (HR): What’s the current state of succession planning in the independent home improvement industry?

Gary Pittsford (GP): The pressure has been building over the last three to five years because most companies have recovered from the recession in 2008 and 2009. Now that sales and profits are higher, and owners are growing older, people are asking more questions about how to quickly develop a succession or exit plan. Business owners are now eager to find answers on how to sell the company for a profit and retire comfortably.

HR: Why do operators in this industry delay succession planning?

GP: Business owners know the hardware industry, retailing and customer service. Many have been working and building their companies for 30 to 40 years. As they start to think about selling or transitioning the business, they are faced with many difficult questions and are entering unfamiliar emotional and financial territories. Some owners are overwhelmed and simply put it off. Some owners are waiting until their businesses have excellent sales and profits in order to get the best sales price. Some have children who want to take over, but the owners are not sure about letting the children have more control or how to develop a transition plan. The reasons for delaying the process vary greatly and are unique to every operator.

HR: What is the risk to individuals, to businesses and to the industry if retailers delay succession planning or don’t establish a plan at all?

GP: This is a very important question. The individual business owners and their companies will always be better off financially by working on an exit or transition plan at least five to 10 years before they sell the company. Developing a plan even three years in advance greatly improves profitability and the value of the business. Having a plan in place also protects your business in the case of unexpected tragedies, such as an owner’s unexpected death or disability.

I’ve watched the retail hardware industry change a lot in the last 40 years and the speed of change has picked up over the last five years.

The average age in the retail hardware industry is around 60. I meet with business owners every week who are between 60 and 80 years old. As these older business owners transition out, and the next generation transitions in, the industry will change more rapidly, because the 40- and 50-year-old next generation will implement newer processes for retailing and running their companies. The next 10 years in the hardware industry is going to be a significant transition period because so many baby boomers are retiring and selling their business to new and younger owners.

When the next generation comes into the leadership role, they shouldn’t resist starting their own plan. Young retailers may not know who they will sell their business to in 20 years, but they should manage their business to make it strong financially. From age 40 to age 60, if you watch the financial side of your business and keep it strong, your succession plan will be easier to implement when you are ready to sell.