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Who's Going to Fill Your Shoes?

Handing over the reins isn’t easy, but with good planning the process can be much less painful for brokers and their sales associates.    

Brokers: Who's Going to Fill Your Shoes?
Ron Acker Sr.’s wake-up call came about seven years ago. As broker-owner of four RE/MAX offices in Central Florida, Acker had been single-handedly running the day-to-day operations for his brokerage, retaining most of the operational strategies and processes in his head.

Then Acker got sick, and realized that if he were forced to retire at any point, there wouldn’t be much left for anyone else to run in his absence. “If something had happened to me, there were no systems in place to take care of my family and my agents,” says Acker, broker-owner of RE/MAX 200 Realty, RE/MAX Town & Country, RE/MAX Realty Center and RE/MAX Achievers.

In real estate since 1979, and a broker-owner since 1991, Acker first restructured the 184-sales associate company in a way that ensured its continuity in the event of a short-term or long-term leadership problem. He consulted with a CPA and an attorney who specializes in corporate transfers, read books on business valuations, talked to his sales associates about his plans, hired managers to run each of his offices and began grooming his two sons to take over the top executive positions.

“My goal was to get this company prepared to operate on its own if something were to prevent me from working,” says Acker, who spent some of his own money setting up the new system. “I hired some of the managers with money out of my own pocket, since the company wasn’t ready to pay for them yet. It was a financial commitment to the company and agents, who need to know that their careers are protected.”

Key changes included setting up the four companies with their own on-site managers and creating a team approach to real estate sales that effectively removed Acker from the day-to-day decision making and operations. He assessed his sons, Lee and Kevin, for their strengths and weaknesses, and then began cultivating them for their respective executive roles.

“Lee tends to be more operational in nature, so I made him operations manager. Kevin has more of a sales bent, so he became our sales manager,” says Acker. “Seven years ago, they weren’t ready to take over this company, but now they are, and the agents have been informed of this.”

Many of the philosophies and strategies that once resided in Acker’s head were put on paper in the form of policies, methods (of how to operate and manage the company) and procedures. Acker also updated his will and created trusts that would protect the business and its assets should he no longer be able to work. The plan doesn’t just gather dust in a safe either, says Acker, who reviews it with his attorney annually to ensure that it’s up to date and on track with the company’s current mission and status.

The exercise paid off this year, when Acker learned that a health problem would prevent him from working for six to 12 months. He immediately referred to his succession plan, and relinquished the day-to-day operational tasks to his sons.

“I positioned myself as a CEO who’s involved with policy and decision making, and who handles business planning with the agents,” says Acker, who’s pleased with the results of his succession planning, for both his family and the company as well as for the sales associates. “I was open with them, talked to them about my strategies, and helped them become secure in knowing that I’ve really thought this thing through.”

Planning for Success
At its simplest, succession planning is an exercise that ensures that individuals are identified and prepared to replace key players as their terms expire, for whatever reason. Done right, succession planning also helps to guarantee the continuity of skills, leadership, knowledge and vision within the organization—at both the leadership and the employee level.

Critical for both family-owned and non-family-owned firms, succession planning is also understanding the organization’s long-term goals and objectives, identifying the workforce’s developmental needs (such as sales associate training) and figuring out longer-term workforce trends and predictions.

Unfortunately, most companies tend to ignore succession planning altogether and instead use a seat-of-the-pants approach to preparing for the future. “If succession planning for small and mid-sized businesses were graded like a class in school, the grade would be a C- or D+,” says John Couzens, managing partner of Denver-based consulting and advisory firm Trinity Capital Services LLC.

“Business owners have great difficulty in getting clarity on what they want for the business in ownership transition,” Couzens adds, “and clearing this fog is challenging because the relationships between the owners are so personal and multifaceted.”

Succession planning is both critical and ignored in the real estate world, where new brokers and seasoned ones typically lack any type of long-term exit strategies for their companies. The fact that 30 percent of real estate brokers are 60 or older, according to the National Association of Realtors®, exacerbates the need for good succession planning, which too often results in companies being merged, acquired or simply shut down in the event of their owners’ demise or inability to continue working.

Brokers like Acker, who do think ahead, find themselves much better prepared when the time comes to relinquish some or all of the power to others. “Business owners who plan for the future can anticipate problems and proactively manage around them in order to get the ownership transition that they want,” says Couzens.

Rounding Out the Team
For Mike Pappas, being proactive has meant rounding out his management team to include a CFO, general manager, vice president of information technology, vice president of marketing and other key positions at The Keyes Co./Realtors in Miami. Pappas, company president, has already been on the receiving end of a succession plan, having taken over the company (with his brother Tim Pappas, who is vice president of finance) from his father, Ted Pappas, in 1993.

Pappas remembers that day 13 years ago when Ted sat down with his children, told them he would soon be moving away from the day-to-day operations of the 32-office, 2,000-associate firm, and asked if “any of you would like to get involved with running and/or owning the company.” Both Mike and Tim, who were working for the company at the time, answered with a resounding yes, and then worked with a family consultancy, CPA and attorney to do a leveraged buyout of the brokerage.

“If we hadn’t been interested, our dad might have just gotten out of the business,” says Pappas, who today oversees both branch and corporate operations for the brokerage. Now, Mike and Ted are looking at their own nine children to see which of them would be interested in—and qualified for—third-generation ownership of the company.

“The key is to identify which of them are capable. Just because they’re blood, doesn’t mean they’re capable,” says Pappas. “They also need the drive and desire to succeed, because this isn’t any easy business.”

For now, Pappas says he’s confident that the management team assembled about four years ago could grow the business and do well even in the absence of its president and vice president of finance.

“They will need a president and CEO, but those individuals haven’t been identified yet,” says Pappas, who feels that identifying solid talent is the best succession planning strategy that a broker can use. “Look for good managers who have talent and track records,” he says. “Without that in place, the business will die with you.”

The Nuts and Bolts
For the broker who lacks a succession plan—or who wants to rev up an existing plan—Couzens says, the first step is to look past your own reign and consider what business ownership goals will be important after you depart. “Think about to whom you’d want to sell the business and why,” Couzens suggests.

Once those goals have been determined—along with any other preferences or constraints related to the ownership of the business—brokers should create scenario alternatives for the various ownership transitions that could take place. For example, is there a family member in line for the position? Perhaps a senior executive who knows the firm inside and out, and shares its vision and goals? Would you be willing to hire a seasoned executive from outside to take over your position?

“Rank each of these alternatives based on your preferences and constraints,” Couzens says, “and then build business cases for each alternative to better understand the resources required, the risks involved and the key milestones.”

This information forms the cornerstone of a good succession plan, which Couzens says should also (under the guidance of an attorney and an accountant) factor in both tax- and estate-planning considerations. Once in place, Couzens says, business plans should be put in writing, reviewed quarterly (with the firm’s leadership and/or management team) and updated annually.

At Prudential Network Realty in Jacksonville, for example, Linda Sherrer sleeps better at night knowing that her daughter Christy Budnick is capable of filling her role when the time comes. Hailing from a banking background, Budnick joined the seven-office, 325-agent brokerage four years ago, and is an executive vice president who oversees the firm’s managers.

“She’s already run her own branch, and [if] everything works out as planned, she’ll take over for me,” says Sherrer, who has been in real estate since 1979, and owned her own firm for 18 years. She handles development of the firm’s mortgage, title and new-office development, and sees herself staying in that role for at least another five to seven years.

Sherrer feels fortunate that her daughter will be ready to “suit up” when called upon, and knows that succession planning is not that easy for all brokerages. “There are a lot of brokers out there [who are] my age [and are] entertaining the idea of merging with another firm. They have no one to take over, and will probably end up selling their companies,” says Sherrer.

Step by Step
To best align your own succession planning goals with the reality of the business market, Lynn Daniel, president of strategic planning firm The Daniel Group in Charlotte, N.C., suggests following a three-step process that includes a strategic plan clearly outlining the company’s future direction. Then, match that vision with the skills and capabilities required to get the brokerage to that level.

Next, Daniel says, brokers should assess their current leadership in view of the present and future expected environments. Find the strengths and weaknesses of each individual who could lead the company in the future, and then match these internal strengths and weaknesses with what the company needs both now and in the future. Do this by asking questions like these: Where are the gaps in skills and capabilities? What does the company need in its leaders to be more effective? Where can I find those leaders? Are they already in my ranks and/or family, or do I need to look elsewhere for those capabilities?

“Once these key players are identified, create a plan for helping each individual develop the skills and capabilities needed to be more effective,” says Daniel, who advises brokers to write down all developmental ideas and plans for future use, and to refer to those notes when creating a succession plan that takes the firm to the next generation of leadership (be it family run or not) and beyond.

“Sit down and think about what you want your company to look like in five years. Then, look at what it’s going to take—in human skills and capabilities—to get there,” says Daniel. “This simple exercise can really get you thinking differently, and more effectively, about succession.”

Bridget McCrea is Clearwater-based freelance writer.