One of the toughest parts of owning a small business is determining when and how to exit. For bakery owners, retirement is much more complicated than packing up boxes and collecting a pension; they are tasked with figuring out what the future will be for the business they may have spent a lifetime building.
Succession planning often takes 15 to 20 years to complete, as life gets in the way–whether children come and go, family dynamics change or the business evolves in an unexpected way.
“Succession is what you make it. It has to grow,” says Lois Manderfield, former co-owner with her husband Dennis of the 78-year-old Manderfield’s Home Bakery, Appleton, Wis. “I don’t know if it’s as easy to say we’re going to do this or that. Times change, people change. We’ve definitely had our ups and downs.” Standing, above from left: Jerry, Matt, Doug, Mike and Paul Manderfield celebrate their father Dennis’ (seated) retirement from Manderfield’s Home Bakery.
Dennis’ parents Frank and Marie established Manderfield’s in 1934. Dennis and Lois took over the bakery in 1979 after running their own bakery for 17 years. When Modern Baking covered Manderfield’s in April 1991, Dennis and Lois had just begun their (then) eight-year succession plan to pass the bakery on to the third generation of Manderfields. More than 20 years later, the plan was finally completed after several adjustments.
At one time or another, all seven Manderfield children have worked in the bakery, which has grown to three locations. Paul runs production and manages the East Appleton bakery, brother Jerry runs production, oversees cake decorating and manages the bakery’s newest location in west Appleton and brother Doug manages the retail areas, sales staff and is in charge of marketing and wholesale accounts. Brother Matt also works at all three locations as a baker’s assistant.
“This hasn’t been a clear-cut succession,” says Manderfield, laughing. “It has developed over many years. My husband and I have been in business for 56 years, married for 55.”
Dennis and Lois turned over management to Paul and Jerry roughly 10 years ago, but they remained involved in the bakery facilitating the transition until last year, when Dennis retired at 80. He and Lois, 76, still retain a consulting role and help out occasionally during the busy seasons.
Where to start
Like most small business owners, the Manderfield’s succession plan began unofficially–with a conversation about when and how they would stop working and who would carry on the business. “We just starting talking about and weighing all our options,” Manderfield says.
Rick Boone, owner with his wife Sharon of 32-year-old Rick’s Bakery in Fayatteville, Ark., started his succession plan with a little self-evaluation. “I have always had to be a micromanager and can’t let go. I need to start learning to turn things over at this stage of the game,” says Boone, who would like to be out of the bakery in the next 15 years. “I need to figure out what made the business successful and how that can be carried on.”
Boone has two sons, only one of whom is working in (and interested in) the bakery. Boone is unsure whether his son wants to eventually take over the business, so he and Sharon have begun splitting their personal finances into trusts that will be divided equally between both sons–keeping the bakery totally separate.
He also has started looking to the next generation among his staff, building an “action team” made up of six managers around 30 years old–because “I’m getting old and my ideas are getting old,” he says–who’ve been at the bakery for at least five years. Each “champion” is tasked with overseeing a different department and identifying areas of the business that need improvement or innovation. This process follows a five-step plan: identify the problem, analyze before anything is done, generate a solution, establish training for the new program, and determine how to measure its success or failure.
In addition to mapping out a future for the bakery and helping set his son up for success should he decide to take over, the main impetus for the action team is to ease Boone and his wife (who oversees decorating and merchandise) out of the business.
“I’ve always worked six or seven days a week. Within the last year, I have gone down to five days a week,” Boone says. “Sharon’s trying to do the same thing. Internally, it kind of drives me crazy–that feeling that if I’m not there holding it all together, it will fall apart. But I’ve got great people.”
Michael Manni, owner with his wife Cheryl of 37-year-old Lasalle Bakery in Providence, R.I., first began thinking about an exit strategy about seven years ago. He tapped into his peer networks of fellow bakers and other business owners for advice. Pictured, left: Michael Manni Sr. with Michael Jr.
“My wife and I were in our mid-50s and we started saying to ourselves, ‘Where are we going with this?’ You start asking yourself what your exit strategy is, and your ears perk up when people in similar shoes mention succession. Even socially out talking to people in other walks of life–you start listening because of the timing in your life.”
Both of Manni’s sons, Michael Jr. and John (now in their 30s), have been in and out of the bakery since they were young, though the future of the business was still unclear, so Manni hired a consultant about four years ago. “His first advice was, ‘Rule out whether your two sons are interested in running the business. Pursue whether they want it or not because if they do, that’s the best thing for all involved.’”
Once it was established that both sons were indeed interested, the bakery underwent a detailed evaluation, which helped Manni establish labels for hard-to-define areas, such as employee titles and responsibilities.
“(The consultant) set up an organizational structure, gave people accountability and got me out of production, which I had been trying to do but never seemed to be able to,” Manni says. “He also helped with management training. Now we have several sales managers–one of my sons is in charge of administration and production; the other son is in charge of sales.”
Manni says this step was crucial before he could even consider transferring or selling shares. “This business has become my wife’s and my principal asset so we have to protect it.”
Handing it over
After assessing the bakery and establishing a succession plan timeline, the messy task of actually handing over the business begins. People can gift property or cash without taxes being assessed as long as it doesn’t exceed $13,000 per year, per 2012 regulations. This can affect succession timelines, so it is crucial bakery owners know how much their business is worth and when and how they will turn over shares.
To start the process of granting stock, the Manderfields initially awarded “earned” bonuses that were converted into shares in the company. “We later began to gift stock to the sons who control our bakeries, as they took over the entire operation of the business,” Manderfield says. “We kept in mind that they would otherwise have to buy out their siblings in the event of our deaths.”
Sons Paul and Jerry are now majority stockholders, each with 24 percent of the voting shares. Dennis and Lois still own 32 percent of the shares, though they’ve since converted their shares to nonvoting. Doug, who started working in the bakery 10 years ago, now holds 4.5 percent of the business in nonvoting shares. Manderfield says they plan to continue gifting stock, as it makes the most sense for them. “Our plan has never been to get rich, and we’ve spent very little time worrying about retirement,” Manderfield adds. “My husband is simply an entrepreneur through and through.”
For the children who aren’t at all involved in the bakery, Dennis and Lois set aside some money in their wills. “In an effort to keep things fair to our other children, we have made provisions in our wills to accomodate this situation as closely as possible. Whether it turns out fair is going to be tricky,” Manderfield notes.
Mark and Rhonda Atwood, who founded Atwood’s Bakery, Alexandria, La., in 1977, established a family trust with 75 shares (of 100 total) of stock in the bakery. Mark is currently the executor of the trust, exercising sole control over the shares, which are each worth about $20,000. He also owns 21 of the remaining 25 shares, having gifted four to his daughter Jennifer, who is still deciding whether she’ll carry on the family business. Mark will continue gifting Jennifer one share per year (worth roughly 4 percent) until the bakery’s future is decided.
“We’ve been working on this plan for a little while and hopefully in the end it will be Jennifer running the business with a general manager or partner. And as we’re needed, we’ll come in,” Mark says. “We own the building ourselves, so we have the business and the building as separate entities. That way, whether we sold or gave the business to Jennifer, we would still have some income without having to put in hours and work. The toughest thing is in a business our size it takes more than one person to run it.”
Manni is starting the gifting process, though he is still working out the details. “Last year, I gave 5 percent to each son and my production manager, who is a long-term employee,” he says. “This year, I’ll be doing gifting again at the end of the year. I’m still working on the formal plan of how shares are going to be distributed. It gets really complicated, and I haven’t gotten into the fine points of that. Again I’ll need some trusted advisers there.”
Grappling with unknowns
In case Manni’s succession plan doesn’t work out, he has a number of other options to explore, including selling the business outright and holding the mortgage. “We own both buildings that the bakeries are in,” he says. “We own some residential real estate, we have some IRAs. One of the buildings is paid off. The business has very little debt and I have very little debt. All this could change. But we’re in pretty good shape right now.”
Rick’s Bakery’s Boone isn’t sure whether his son, now 35, will take over the business. Moreover, Boone doesn’t want him to feel beholden to the way he has run the bakery during his ownership tenure.
“I’d basically be asking him, ‘Are you ready to commit the next 30 years to this business?’” Boone says. “My fear would be that he would not do something else out of obligation to the bakery because friends said, ‘You’d be crazy to give that up,’ instead of doing something he really loves to do. Bakeries are complicated businesses. There’s so much under one roof. Smart, dumb, whatever–we’ve created these monsters.”
Jennifer Atwood also hasn’t decided whether she wants to take over Atwood’s Bakery from her parents, and she grapples with how to make the business her own.
“About a year ago, I started thinking, ‘Is this really what I want to do?’” she says. “I also thought, ‘Am I always going to be the child here?’ A lot of employees have been here since I was in junior high. When I tell them to do something, it doesn’t mean the same as if my parents do. I wonder, ‘Is this me as far as the identity of the bakery. And can I make it me?’ You hate to see something close down that your parents spent so long building.”
“I hate for it to come down to money, but it does,” Mark adds. “I have a lot of time and money invested, and I want to make sure the business goes on providing income for Jennifer, Rhonda and me. There also is emotion built in because we have a customer base we started 35 years ago that’s multigenerational.”
If Jennifer decides not to take over Atwood’s Bakery, Mark and Rhonda will take on a partner with the intent that this person will buy them out after working at the bakery for at least four to five years. “Or I’ll work till I’m 110,” Mark says, laughing.
When plans change
Sometimes even the most promising succession plans simply don’t work out. Third-generation baker and former owner of 60-year-old La Bonbonniere Bakery Matt D’Agostino was two and a half years into a five-year succession plan to turn the business over to his son and daughter when both decided that running a bakery wasn’t the lifestyle they wanted. Since Matt was the sole owner and his brother Randy, who also worked in the bakery, didn’t have the capital to purchase the business, Matt decided to put the four-unit, full-line retail bakery up for sale.
“There was emotion involved in the decision to sell, but I always said as long as I love the business, I will be in it. And I stopped loving it,” Matt says. The bakery’s size enabled him to look outside the bakery industry for potential buyers.
“Even when my dad was in the business, we always set it up so a non-baker could take over. We always had middle management, so the business always ran the same when we were there and when we weren’t.”
“The main thing was we wanted someone to treat it like a family business and keep it going like my father wanted,” Randy adds.
Matt had offers from both a wholesale baking operation looking to get into retail and from Brian Pansari, a consumer products marketing executive looking to get out of his corporate career and purchase a business that wasn’t in need of a total overhaul.
“I was coming into it without entrepreneurial experience. I knew there would be things I needed to learn about that,” Pansari says. “I also enjoyed baking as a passion and personal interest but didn’t have commercial experience, so I wasn’t coming in as a trained baker knowing the production end.”
It didn’t take Matt long to decide that Pansari was the perfect fit. He stayed on at the bakery for two months to help with the transition and make sure that the bakery’s 60 employees weren’t concerned about their jobs. Pansari spent the first three days sitting down with each of the managers individually to talk about the future of the business with him as the owner. “I never put up a sign saying ‘Under new management,’” Pansari says. “What I told them was, ‘I don’t want to change anything. I first want to learn about the business, find all the things we’re doing well and the areas that need improvement and improve upon those.’”
“The proof is all of them are still working with Brian,” Matt adds.
Although Pansari initially had trepidations about carrying on the LaBonbonniere name, the bakery’s longstanding reputation in the community ultimately worked in his favor and has allowed him to slowly put his own stamp to the bakeries.
“I would much rather do it this way than have had to build my reputation from the ground up,” he says. “Over the course of the first year, you’re just maintaining things and trying to not screw up. The second year has been more about how can I refine things and set up for the long term. And as I’m getting into the third year, I want to focus on implementing changes over time. It’s going to be an evolution.”
Like many other facets of the baking industry, what works for one business won’t necessarily work for another when it comes to succession, though it helps to talk to one another, as Mark Atwood notes. “We bounce ideas off other bakers, but what works here wouldn’t work in a big city. There’s no such thing as a McBakery,” he says. “If there was a McBakery, you could apply what you see in one to the other. But every business is different, every town is different.”