When Sigmund, Max and Sol Jucker opened Three Brothers Bakery in 1949, they wanted to build something together that would sustain their families. Fast-forward 70 years, and the Houston-based bakery is still going strong, with three regional locations and a robust mail-order business. But while the Juckers were expert bakers (the challah bread cake recipe they used to open the shop is unchanged today), one thing they hadn’t yet planned for was crafting a post-retirement plan for the bakery.
“The three brothers had no succession plan, and it was left to the next generation to figure it out,” says Janice Jucker, whose husband, Bobby (Sigmund’s eldest son), took over the bakery in 2000. As the current owners, they don’t want to make the same mistake, so though they’re decades from retirement, they already have a succession plan in mind: “We don’t have any children that are interested in taking over the business, so we’re trying to grow the bakery so we can eventually sell it.”
Nearly 80 percent of small business owners plan to leave their business in 10 years or less, according to a Business Enterprise Institute survey. Yet only 17 percent have created a written exit strategy.
Creating a succession plan also serves to preserve the legacy of what you’ve built. In Los Angeles, couple Fung Chow and Waihing Chan opened Phoenix Bakery in 1938. They were soon joined by Fung’s brother, Lun, whose now-famous strawberry cake—two layers of sponge filled with a massive amount of strawberries and coated in sweet cream frosting—transformed the small space into a Chinatown institution. Mapping out a plan to transfer the business to the next generation was a way to keep the bakery—and its traditions—alive, says Ken Chan, Fung and Waihing’s son and one of the current owners, who’s currently in his 60s.
“Nobody lives forever, and nobody can work forever, so it’s time to start thinking again of the future,” Chan says. “The third generation is slowly coming on board and taking an interest in the bakery,” mainly through activities such as social media marketing and website maintenance, areas where they already have skill and interest. Over the next few years, the sons and daughters of the current owners will eventually assume ownership of the family bakery.
But no matter which strategy makes the most sense for your bakery, there are certain steps you can take to ensure a smoother succession. Here’s how:
Think Long Term
Don’t wait until you’re planning your retirement party to map out a succession plan. This is a process best started years in advance, says Dyanne Ross-Hanson, CEO of consulting firm Exit Planning Strategies in Woodbury, Minnesota. “The more time a bakery owner has to plan, the more successful the exit tends to be.”
When courting an outside buyer, it can take at least one to three years to get the business in its best sellable shape. Preparation involves documenting operational processes (such as detailing seasonal recipes and writing manuals on how to recruit and train new bakery staff), paying down existing debts, updating facilities and diversifying the bakery’s customer base. “Just like we spruce up our homes when selling a personal residence, taking time to get the business ready for the marketplace will make a huge difference on the resulting purchase prices,” she says.
Getting down on paper exact roles and responsibilities is especially important when the current owners are managing employees who have worked there for years—or even decades, Ross-Hanson adds. Having the right documentation in place will help with the transition (and signal to potential buyers that you’ve thought through potential speed bumps), whether or not those long-time employees decide to stick around.
Keeping a business in the family tends to be a more common and logical form of succession planning for bakery owners. Ross-Hanson recommends a longer runway, at least five years, for internal transitions. Although the financial and legal side of gifting or selling the business might be relatively straightforward, it can take that long to allow the successor to hone one’s bakery and business skills and to adjust to the demands of running a business.
Know the Dollars and Cents
Putting a price tag on the bakery is a feat made harder by the emotions involved. That’s one reason that leaning on an outside expert—such as an accountant—can be worth the time and expense.
“As a general rule of thumb, many businesses are valued as a multiple of free cash flow,” Ross-Hanson says. But there are alternate methods, such as “book value,” which is simply all of the bakery’s assets (equipment, property, etc.) minus all of its liabilities (outstanding loans, accounts payable, etc.). Strengthening the bakery’s finances is a straightforward way to ultimately increase its valuation.
Train for the Transition
Expecting a new owner to take over bakery operations without a lengthy handoff can set up the new owner and the business for failure. In fact, one of the big risks of succession planning is rushing through the transition period, Ross-Hanson says. In extreme cases, you’ll find original owners having to either take back the bakery or watch it close due to poor leadership.
At Phoenix Bakery, Chan credits the summers and weekends that he, his siblings and cousins spent working there as being invaluable to the smooth transition once they took over. As kids, they would often be tasked with washing cake pans and sweeping the bakery’s small interior. Later, they learned to dip cookies in sweet glaze and other bakery basics. After graduating from the American Institute of Baking, Chan was ready to try his hand at his father’s famous strawberry cake—though it took roughly a year for him to execute the recipe just right, he says. When his parents and uncle began gifting ownership shares, the next generation knew intimately what was involved in running the bakery.
“There’s a retained culture and retained legacy that comes with keeping the bakery in the family,” Ross-Hanson says. But no matter which style of succession a bakery owner chooses, creating a plan for it can ensure the business keeps its doors open long after the original owner has left.
Ingredients for a Strong Succession
Opened in 1983, Sweetwater’s Donut Mill has been in the Garner family ever since. Greg took over running the three bakeries, in and around Kalamazoo, Michigan, after his father, John, died in 2014. Here’s what he thinks a bakery owner needs for a strong succession:
Next-gen love: He’s made it clear to his two kids that they should step in to run the bakeries only if they have a passion for both business and donuts. “We would love for Sweetwater’s to be multigenerational, but if their hearts are not in it, we can’t force that.” Still, making that final decision is one that he thinks is best delayed until the kids have a chance to really get their hands dirty in the business.
Complementary skills: How do you divvy up how multiple kids will run a business? It helps to think of what each person will bring to the table, Garner says. “My son has more of a brain for tech and accounting, and my daughter is more creative,” he says. “I could see their unique talents working side by side really well, and so we’ll train for that now so we can ease into it as opposed to letting them scramble.”
Strong brand: Part of what made Sweetwater’s first transition so smooth is that Garner and his wife doubled down on what already worked: “When I took over, I thought, ‘I’m not going to make this any less than it was. I’m not going to change ingredients or cut corners.’” And though the donut menu does flirt with more seasonal and trendy flavors (think curry, matcha and herbs), the regional chain’s bestsellers continue to be classics.
Here are three tools to help you plan for the financial future.
- T. Rowe Price’s Retirement Income Calculator makes your post-work finances more tangible by helping project your monthly retirement income based on different planning scenarios. For instance, tweak the sales price on your bakery and you can see how this change betters your chances of stretching savings across your golden years. (troweprice.com)
- SmartAsset’s Financial Advisor Match is a free online tool that pairs you with a financial planner in your area. Each planner is also a fiduciary, meaning they’re legally bound to make recommendations in your best interest. (smartasset.com)
- Fidelity’s Retirement Score is tailored to those who don’t have the patience for detailed financial inputs but want a quick visual sense of how their assets will play out in retirement. (fidelity.com)