Lori Hilson Cioromski's father set up his exit strategy when he hired her in 1985. A marketing major at Loyola University Chicago at the time, she had no plans to enter the family business, TH Hilson Co., until he suggested it. The midsize industrial distributor in Wheaton, Ill. supplies chemicals to manufacturers that make adhesives, shampoos, hand creams and paint, like Sherwin-Williams. It has $57 million in sales.
As CEO, Cioromski, 53, formalized TH Hilson's succession plan. Key executives receive deferred compensation, and a life insurance policy buys out any shareholder who dies. Then, in March, Cioromski sold the company to Ravago, a plastics materials company in Arendonk, Belgium. The sale, she says, had nothing to do with solving the succession puzzle because she had outlined a plan already.
As her experience illustrates, there's a second option for handing off a company: selling it. Since the start of 2015, private-equity firms have been scouring the economy for returns in a low interest rate environment, snapping up small manufacturers in the process. Yet there's also a sprinkling of wishful thinking among sellers, born from years of attending to day-to-day operations: “[Owners] don't always think about selling their business. They just think, when it's time, someone will buy them,” Dawson says.
That can be a problem when the company is too small to pay out the older generation and retain sufficient profit to attract a buyer, says John Ocwieja, a business financial planner at Chicago's Hoopis Group. There's the option of selling to an employee, but that usually requires seller financing. If the business goes south, the owner may need to come out of retirement to rescue his or her investment.
Moreover, even if a sale to a deep-pocketed buyer does yield a generous lump sum, the newly retired owner has to make it last a lifetime, which could mean a lifestyle change for someone accustomed to bringing home, let's say, $500,000 a year. “That is a big wakeup call to people,” Ocwieja says.