Family-Owned HVAC, Plumbing Company
Pumps Up Operations In Order To Prepare For
Transfer Of Ownership To Next Generation

For over 30 years, John Gosch was the sole proprietor of Gosch & Schacht, a plumbing and heating service company in Cresco, Iowa. The small business prospered and provided John with a comfortable living for his wife and six children ...

... Like many small businesses, however, John typically handled the day-to-day operations of the business without an eye to the future. When circumstances forced him to consider transitioning the business to two of his sons, John Gosch realized that he had to look at his life-long business in a whole new light.

Here's the story of how management consultants from George S. May International Company helped Gosch & Shacht better monitor its current business situation and plan for the continued viability of the company.

OPEN FOR BUSINESS

Gosch & Schacht opened in 1971 when John H. Gosch bought out the plumbing, heating and wiring business owned by Oscar Schacht. Oscar remained a part of the business for two years as John became increasingly more proficient at repair, service and installation. As John was learning the skills of the trade, he also was receiving hands-on training in the operation of a small business.

Through the years John saw the business through ups and downs and more than a few changes. For starters, when Oscar exited the company John abandoned the wiring side of the business to concentrate on his core strengths -- heating, cooling and plumbing.

In the 1980s, John expanded the business by more aggressively pursuing cooling service. "When we expanded our operations in the A/C market, our business really grew," says John. "At that point in time I had about six guys working for me. Unfortunately, the extra overhead almost bankrupted the company."

ON THE REBOUND

After reorganizing his work force, John's next move was to establish Gosch & Schacht's presence in the nearby agricultural community, where the company installed plumbing in wells used to water livestock.

The move was a wise one, and by 2002 Gosch & Schacht's client roster grew to include residential, commercial and agricultural clients throughout northeast Iowa. According to John, one of his major clients is a corporate farm that raises 12,000 hogs. Gosch & Schacht also includes retail parts sales for Do-It-Yourselfers. Sales volume for the business approached $750,000 in 2002.

"This business runs kind of like a fire department," says John. "When there's a call, you go. Some of our busiest times are during cold snaps and heat waves. We don't want to leave anyone without heating or cooling on the worst days. You have to be able to drop what you're doing to help these folks."

That philosophy leads to a lot of long hours for John, whose two sons joined the business in the 1990s. The three put in 10-hour days during the week and five hours on Saturday. The first hour of the day is typically devoted to counter sales, says John. "We started opening up the counter at 7:00 a.m., instead of 8:00 a.m., so we could take care of our retail customers before preparing for our day in the field. The extra hour in the morning doesn't always buy us the extra time we need, however. We just have more to deal with each day."

But his sons are used to the pace of the business. As children, both worked with John after school, during the summers and on holiday breaks. The eldest, Bill, began working with his father when he was eight years old. "They loved it. They loved being around this stuff. These boys have always enjoyed the work," says John.

That enthusiasm for the family business is what made John take a good, hard look at his operation. After a health scare, John began to seriously consider the process of transferring ownership of the business to his sons.

"I talked to bankers, tax advisors my insurance company, and of course, lawyers. None of them could help. It's hard to find someone with that specific expertise. Each of these people had his or her own niche, and something to sell, but transferring a family business is a whole different ballgame."

John and his wife continued to talk about how to approach the transfer, but never took any firm action.

Unfortunately, the untimely death of his neighbor and fellow business owner provided John with a real wake up call. "If that happened to me," John told his wife, Pat, "look at the mess I'd leave you with."

PROVIDING A MAP

In 2003, special representatives from George S. May International Company called on John to talk about conducting a business analysis of Gosch & Schocht's operations. "It was almost quirky," says John, "the way they came in at the time when I was looking for some direction."

John agreed to a Survey, explaining that he realized he needed help in organizing the business. His number one priority, however, was to develop a plan for transitioning the business to his sons, Bill and David.

The Survey revealed that before proceeding with the transition, Gosch & Schacht first had to get its financials in order. "I had been practicing checkbook accounting for years, so I didn't really know my true cost of doing business. It's like learning to crawl before you walk," said John. "We couldn't do anything until we had the numbers."

The May International consultants started by helping John and his sons set up a system for calculating business costs, preparing a balance sheet and formulating monthly profit and loss statements. With those systems in place, Gosch & Schacht could determine a sales price that would fairly compensate John while allowing Bill and David to remain profitable.

The consultants also guided the Gosch family through setting up the new corporation with the two sons as shareholders. The consultants advised that the articles of incorporation, to be written by the company's attorneys, include a clause that allowed one brother to buy the other one out if they so chose.

To ensure that the business runs smoothly for generations to come, May International consultants also helped the Gosch family set up a procedure and policy manual and determine a correct bid formula for brief jobs.

When the consulting project concluded in June 2003, Gosch & Schacht had in place a plan for transferring ownership of the business to Bill and David by January 1, 2004. John agreed to remain a part of the team for two years to help his sons through the transition.

Gosch & Schacht changed hands on January 1, 2004, and is now incorporated as Gosch's, LLC. The company planned to call in the May International staff in the third quarter of the year to review profit and loss statements and make sure the new company is on the right track.

John expressed his satisfaction with the work of May International when he wrote: "If I had an offer today from the George S. May Interna-tional staff to refund my money but take away all that they have done for this business, I would refuse the money."

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