Rick Jr. and Rick Hess are at the start of a long road for planning the next stages of Tri-State Underground. Rick Hess is looking to start his exit from the business he built at 24. | DBT PHOTO BY KATIE TABELING
TOWNSEND — At 24, Rick Hess started a business with his brother-in-law, using his skills in electrical contracting to get more involved in installing underground cables. By 2003, his partner moved on and the company expanded to various utilities as Tri-State Underground.
Today, the company has 19 employees and has clients all over the First State as well as Maryland, Pennsylvania and New Jersey. And Hess, at age 60, is starting to think of life outside the successful enterprise he built.
“Turning 60, for whatever reason, made me realize that I’m not young anymore and there’s other things I want to do with my life,” Hess said. “I’ve never taken time off. I bought an RV and now that I have started to take time off, I have to say, it’s fun.”
His son, Ricky Jr., has worked for the business on and off for 15 years and has stepped up to handle day-to-day operations. While Hess has no immediate plans to retire just yet, he’s excited to see where his son takes the business next.
But first, there’s some business to take care of before Hess can officially hand over the reins. And he’s just at the start of the process.
“It’s a lot more involved than I anticipated,” he said. “There’s meetings and calls with lawyers and accountants. Hopefully because [Ricky Jr.] and I know each other so well, we can be seamless, but there’s a lot of work in order to get it straight.”
Hess is not alone in thinking about what happens to the business he built after he walks out the door. Many of Delaware’s small businesses are run by families, and the process to ensure the business makes it to the next generation should start sooner than later, Delaware Small Business Development Center (SBDC) Business Advisor Margo Reign said.
“It’s something that should be done early, ideally before any second or third generation comes on,” she said. “There’s challenges in that it can be hard, particularly if the founder is still in charge, to let go of the business. Nobody lives forever, and you don’t want to have a false mentality that you don’t have to worry about this because you don’t plan on leaving.”
Reign, who also previously served as the Delaware SBDC Family Business Center Director for eight years, has worked with scores of businesses on how to navigate the next steps for setting up the next generation. In her experience, there’s two sides of the matter: practical and emotional.
On the practical side, Reign advises businesses to start work with an accountant and an attorney. Buy-sell agreements, or a contract that outlines how partners exit the business, need to be signed. Life insurance should also be considered to help pay out for any business expenses, in the worst case scenario of a death.
As for accounting, start maintaining easy-to-access records for at least three years of financial statements to help in the company valuation if the company is to be sold.
“Accountants are sometimes trained to minimize taxes, and it’s a different method of documentation to ensure that the right tax planning is also in order,” Reign said.
On the emotional side, families should have a conversation of expectations on transferring the business. Sometimes people get blindsided with the idea that they have to buy the company, she said. There should also be clear criteria of work experience for bringing family members in the business. That could mean starting as a teenager at a construction firm or securing degrees that require years of education for financial firms or medical practices.
“Lack of communication is one of the biggest challenges out there. Part of the problem is that families, just like humans, assume they know things,” she said. “And you don’t need to have a lawyer to answer some of the basic questions.”
On the flip side: Reign advises that the company leader or founder also have clear expectations once they leave the company. Planning what to do in retirement — whether that’s traveling, a hobby or volunteering — can keep that former business owner busy and not upset when changes are made to the day-to-day operations.
“The owner has to recognize it’s not their business anymore and that can be hard when this has been their life 10 hours a day, six days a week,” she said. “Keep in mind, the goal is always the same: everyone showing up at Thanksgiving and talking to each other.”