Meeting everyone’s transition timetable can be tricky
By Connie Lannan
May 1, 2021
When Matt Mutton was a college junior, he made a major decision. He wanted to take over the family rental business, Mutton Rental Center d/b/a Mutton Party and Tent Rental, Fort Wayne, Ind., from his parents, Bob and Linda, who had started the business in 1985.
It took some time for Matt to come to that realization. “When I started college, I was thinking I would work in corporate America, but as I got deeper into school and took more specialized classes, I realized that if I worked for a major corporation, I would be working in one area, such as accounting, and being a numbers-cruncher. It dawned on me that I enjoyed the variety. In a small business, you wear a whole bunch of different hats. I realized that I needed that to be happy. When I graduated from college, I had a very clear goal in my mind that I was going to take over the business. There wasn’t any option. That clear-eyed decision probably helped the transition,” he says.
“When Matt told me he wanted to buy the business, I was 53 years old. I said that he would have to increase sales because I was trying to work less and make the same amount of money,” Bob says with a laugh.
Bob had knowledge about undertaking this type of transition as he had been through a couple of buyouts of a company he owned with his brother and father earlier in life. In addition, he had attended seminars on the subject that were offered by the American Rental Association (ARA) and other organizations.
“My and my wife’s objective for when to sell would be when Matt was in a situation where he could pay it off and run it on his own. My goal had always been to run the business as a franchise and standardize almost everything you are doing. Matt’s plans to take over the business further solidified the importance of this goal,” Bob says.
When Matt came to the business full time after graduating from college in 2008 with a major in business entrepreneurship, his parents took the first steps of the transition by beginning to transfer shares of the company to him at the end of each year. “It was part of my bonus,” Matt says, adding that every year he kept working, he received more ownership of the company. It was a strategic tax move on Bob and Linda’s part because it was tax-free.
As it turned out, Matt entered the business as the country was plunging into a recession.
“In hindsight, my new energy and growth focus sheltered the company from what were painful years for many companies,” Matt says.
“We bought a lot of equipment during the slow time and increased business rapidly,” Bob says. “We presented our customers with new inventory. We did well during that time. Our objective was to have higher-quality products and better service. Matt did a great job of getting a lot of long-term contracts. We got the state fair contract in 2010, which continues to be a big feather in our cap. He pretty much ran the warehouse and operations when he came back. He became very aggressive in the market. We had a lot of fun.”
Throughout this time, Bob and Linda saw how their son was evolving and could also see that he was ready for the transition. “He ran the warehouse and was better with the younger staff. He felt comfortable handling that and continued to play a larger role in sales. I turned a lot of big projects over to him. He was doing a great job with the clients. With his education, he could do spreadsheets, and he was fairly knowledgeable about profit-and-loss statements, balance sheets and interest. He had good business knowledge and sense. When we would come home from work, we talked about work until Linda made us stop,” Bob says.
Matt applauds his parents for how they helped customers, employees and other businesses with which they had relationships understand that the roles were starting to change. “My parents did a really good job. Pretty much every client and vendor they dealt with was comfortable with me, and by the time we got anywhere close to a buyout, I was their point of contact. They were used to dealing with me,” Matt says.
Another step in the transition took place in 2012, when Linda, who had managed the office and took care of the administrative, human resources and accounting aspects of the business, decided to retire. She hired and began to train her replacement.
By 2015, the family decided they could no longer stay in their 12,000-sq.-ft. building that had four truck docks. “It was packed to the ceiling and every corner was filled,” Matt says. “We had a secondary 6,000-sq.-ft. warehouse that we were renting to house our tradeshow inventory, which came from a business we had acquired a few years prior. After several months of looking, we came across the perfect 30,000-sq.-ft. building. My parents bought the building, and I took a loan and paid for all the improvements, which equated to 50 percent ownership in the new facility.”
That was a significant step forward. While Matt was running the business, Bob served as general contractor of the new building, overseeing contractors and being involved in all the improvements. “We were kind of doing the transition there. That was a big warehouse. We gutted the building, put in offices, a showroom, china and laundry rooms as well as redid the outside, adding truck docks and the parking lot. It took about 10 months. Once that started, I dropped out of the day-to-day operations. That was a big transition. I worked on the building, which is where the business is now,” Bob says.
Throughout all this time, Matt was very eager to keep the transition moving forward. He wanted to determine the actual price for the business so he could figure out how to make it work. “Once the new building was bought and my dad started overseeing the remodel, he had no active role in the business. In my perspective, I was doing all the work and he still owned most of the business. If I was just an employee, I would have never thought anything about it, but I knew my parents had a plan and knew it was going to happen. Maybe I was a little too aware of it and I was too ready to go,” Matt says.
“We both were very hands-on,” Bob says. “As far as getting things done, we both had a mindset that we needed to do whatever we needed to do to get everything done, so Matt and I really didn’t butt heads until I started phasing out of the day-to-day operation.”
The timeline of the transition was their one and only point of contention.
“In hindsight, I think if you are going to transition out, don’t talk about it until you are 100 percent ready to start the transition,” Matt says. “I had an idea that I was going to buy or run the business in short order. It wasn’t going on my timeline. That became frustrating to both of us.”
Bob agrees. “I knew I didn’t want to do this forever, but I enjoyed my work. We never had a timeline for how long it would take. Matt was frustrated by that, but I also felt a little bit like Matt wanted to push me out before I wanted to go,” he says.
The three of them worked through their frustration, and in 2016 they agreed to figure out the buyout. They finalized the paperwork and closed on the deal in January 2017.
“The building is under its own LLC. Bob and Linda still own half, and Matt continues to pay down the loan he took out for building improvements that brought him in as an owner. For the buy-sell agreement, we strategically structured the sale as a combination of goodwill and stock, which offered tax advantages. The stock is what owned the inventory. We also had loans that were due on the inventory of more recent equipment purchases, which Matt assumed as part of the buyout. We sold the whole thing on contract, with a seven-year payment plan. Matt decided to complete it in five years. By December of this year, Matt will have paid us off,” Bob says.
In the end, Bob says it all worked out to everyone’s best interest. “It was a good time to do it. We moved into a new building. It was organized, and I wasn’t active in the day-to-day operation any longer,” he says.
Matt, who is now president of the company, is grateful for all his parents did to make the transition work. “It evolved. I think my parents had a good plan for what they were doing and over time, it just happened. My parents always had the intention they would retire and get out. It happened organically. By the time we signed paperwork, it was done,” Matt says.
Even though Bob is no longer in the day-to-day business activities, he is still involved.
“We talk almost every single day,” Matt says.
“Yes, he bounces things off me,” Bob says.
For Matt, that is comforting. “I know my parents are there if I need assistance,” he says.