Passing a logging business on

possible, you first need an owner willing to pass the business on, and one or more younger family members willing to take it on.

Many current owners of logging businesses are willing and even eager to see their businesses continue with the next generation, but often the younger generation is not interested. Part of this is due to culture.

“Growing up, almost every adult I met, whether it was my teachers, guys I worked with during the summer for my father, etc. would tell me, ‘Eric you’re too smart, go to college. Do something better with your life than becoming a logger,’” Eric said. “A mentality was created within me from outside influencers that I was too talented to spend my skills working in the logging industry. This is a lie that needs to go away!”

Eric believes what he experienced growing up is no different from what many other kids faced, and that we are seeing the result of that cultural mistake today.

“You can’t have a society placing no value on trades jobs and then 15-20 years later ask, why can’t I find a plumber, electrician, carpenter, trucker, mechanic, or a logger?” Eric said.

Once he overcame the mental obstacle, the next deterrent to returning to Maine to work in the family business was fears over job security due to recent developments in the state’s forest products industry, Eric said.

Eric and Steve began to talk about the idea of business succession when Eric and his family came to Maine for a visit in 2015. Both clearly recall a conversation about the future of remaining paper mills in the area after mills in Bucksport and East Millinocket had closed the previous year.

“I remember telling Dad, I know what mills are remaining in Maine. I know their financial positions, what they make and where they fall on the cost curve compared to other mills, and my experience in the paper industry tells me several of them will no longer be around operating,” Eric said. “It wasn’t two months later after going back down south that Maine mills closing were all over the news, one after the other, so I put the brakes on,” Eric said. Despite the warning signs, his desire to return would not go away. Born and raised in rural Maine, he

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Succession Continued from Page 176 increasingly missed that lifestyle. Then in February of 2017, his mother underwent major heart surgery, and this put some things into perspective for him about how short and fragile our lives are, Eric said.

Eric and his young family returned to Maine that summer. He began working with his father at Hanington Bros. in August, the third generation to do so. He has been there ever since.

“I’m a Mainer, I was born in the woods, raised in the woods, worked in the woods and played in the woods. The woods is what I love and it’s where I belong,” Eric said. “Society may look down on me and think for some reason they are better than me because I’m from the woods and work in the woods. In my opinion they should be envious of me because I love what I do, and I can make a living doing it.”

A lot to consider

going.”

Steve and Eric Hanington agreed the financial hurdles of succession planning are huge, including taxes on transfer of property that often make it all but impossible. They overcame those hurdles and their own transition was completed in December 2020, but it was not easy.

“It was a struggle for us to figure out how we could do it affordably, to try to get him in ownership and make the transition,” Steve said. “For a willing buyer and seller, it’s still pretty difficult in a family business to transition. That’s why the statistics on second and third generation business failures are what they are, and from an affordability standpoint, whether you’re logging or have some other kind of business, I don’t think government allows it to be an easy transition.”

Challenges family businesses face:

 30% of family businesses survive the transition from first to second generation ownership.

A willingness on the part of both generations to continue a family logging business is just the beginning of the process of actually doing it. The toughest part of any succession plan is making sure the transition can be accomplished in a way that makes financial sense for everyone. In most cases the current owner needs money from the business for retirement, while the future owner or owners cannot afford to buy the business outright and must therefore work toward ownership while earning a living at the same time. Often, the plan must also consider heirs who do not want to be involved in the business, and how to fairly structure estate planning to accommodate that.

 12% survive the transition from second to third generation.

 Only 13 percent of family businesses remain in the family over 60 years.

 47% of family business owners expecting to retire in five years DO NOT have a successor.

“The first thing you’ve got to do is get all the families together and figure out that they’re all right doing it,” Andy Irish, owner of Irish Family Logging in Rumford, said. “There is a lot for everyone to consider.”

Andy and his uncle started Irish Family Logging four decades ago and his son, Jason, and son-in-law, Dean Knolles, have worked with him in the business for many years. All had the desire to continue the company, but getting from there to where they are today - with the transition from first to second generation well underwaytook a lot of discussion and planning.

“For one thing, as the owner you’ve got to not plan on the money from it, it’s not a liquidation, it’s not like you’re turning in your 401k and getting the money from it, so that makes it pretty tough if that’s the only thing you’ve got for retirement,” Andy said. “And while the transition is going on you’ve got to keep the company capitalized, you’ve got to keep buying equipment and you’ve got to keep the checkbook with money in it so everyone can keep

Start early and seek help

Both Irish Family Logging and Hanington Bros. had help with the succession process from outside accounting firms skilled at creating succession plans. Both were told the process is a long one, and agreed outside help and getting started early are important in coming up with a plan that can work.

In most succession plans, working out the financial details of the plan requires a significant amount of time, and then implementing the plan can take years longer if the transition is phased in as many are to allow both generations to continue earning a living as ownership shifts over time.

“It was not an easy challenge to figure out for Dad and I, to make sure that both of our goals were met in the transition and both of us were compensated fairly,” Eric said. “It took us roughly three years to figure out how we could do it and afford it. If I have any advice for people looking to transition family business’s it is - the sooner you can start the process the better.”

Andy, Jason, and Dean were told to expect the process to take at least five years. Andy is now 65, but began considering a succession plan in his late 50s. That plan is underway now, but it did take years.

“It’s started moving, the paperwork’s been done,” Dean said. “It’s a slow transition, but the process has started and we’ve got everything arranged so that basically if anything happens to one of the three party’s things can continue.”

Build a plan that work for you

Every family logging business is unique, and - while there are common strategies - so is every succession plan.

In the case of the Haningtons, the business really consists of two entities, the logging side and the timberlands. The combination of annual revenue from stumpage sales on the timberlands and the gifting exemption in the tax code turned out to be critical to a succession plan whereby Eric takes ownership of the company from his parents, Steve and Teresa, over a period of years.

Steve, who is 60, can now continue to work in the company while shifting responsibility over time to Eric. Each are involved in daily operations, and manage different parts of the business. They communicate every day, and it works well.

There is more to their plan, but the timberland portion was what allowed Steve to still move toward eventual retirement while allowing Eric, who could not afford to simply buy the company, to move toward full ownership.

“We can use the timberland stumpage for him to purchase it and I can use the revenue to buy more, which we both still own stock in,” Steve said. “Honestly without the timberlands I don’t think this would have been possible.”

Irish Family Logging has also adopted a plan that transitions ownership over time. Their accountant and a lawyer essentially drafted a buyer and seller’s agreement tied to shares in the company.

“Basically, both families including Jason and Dean and their wives get some shares every year, and that starts the process. So those shares are worth x amount of dollars up to the first five years, then they go up a little bit over time, and they aren’t full value until 10 years go by, unless the company is sold,” Andy said.

Like Steve at Hanington Bros., the transition allows Andy to keep working in the business over the next few years, which he likes, until retirement while transferring responsibility to the younger generation over time.

“The toughest thing about making the change it to get the people used to calling the kids instead of you, so now everybody calls Jason and Dean,” Andy said. “It’s a big change and it takes a few years, but now they feel confident doing that.”

“

The other thing that does is let the workforce know the company has a future,” Dean added. “I think conveying the message that that’s what the plan is, you know he’s not one day going to hang everything up and we’re all going home, but the plan is me and Jason are going to keep this going, is important.”

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The best of both worlds

A succession plan is no guarantee that a logging business will be able to continue, but having one in place and a transition underway is certainly something all members of a family vested in the process can feel good about.

For the older generation, it is a good feeling to have plans in place for the future and to see a business they have poured a lot of time, money, and effort into continue, while hopefully continuing to provide benefits to their children. For the younger generation vested in the business, having a path forward and more certainty about what will happen when they become the full owners of it allows them to better plan their own lives and careers while taking pride that they are building on the family’s legacy.

Talk of retirement may be common among logging business owners in their 60s, but logging is in their blood and for many the idea of shifting some parts of the job to the younger generation while continuing to be involved and have more time for the parts of the job they enjoy is something a succession plan can provide.

“I’ll honestly say I like it now, not having to do all the decision making,” Steve said. “I tell people I’ve got the best of both worlds right now.”

It’s time

Not all logging business owners approaching retirement age have a desire to see their business pass to another generation, but it is a safe bet to assume many are at the point of considering the idea and realizing they will need to make some decisions soon.

“That’s exactly where we are at,” Marc Greaney, who together with his wife, Jennifer, owns and operates Western Maine Timberlands Inc. in Fryeburg, said.

Marc is a first-generation logger and is 52. His son, Reese is 22, and works full-time in the business. Reese can already run multiple pieces of equipment and has his Commercial Driver’s License (CDL), as well as a degree in Forestry from the University of New Hampshire.

Marc does not intend to still be logging when he is 65, and though Reese is still young, Marc believes he is equipped to continue the company someday if that is something he wants to do. His younger son, Brayden, may one day have an interest as well.

“We really haven’t had that conversation with Reese because he’s not there yet and neither are we, but I think this spring we’ll sit down and start talking about it, and maybe I’ll have a five or six-year plan,” Marc said.

While the idea of seeing the business continue is appealing, Marc can certainly understand why many in the younger generation may be hesitant to commit to a logging industry that has been through a series of very difficult years recently, while seeing friends entering other careers that offer better pay, more security, and an easier lifestyle.

For a young person looking at someday taking over a logging business, concerns over finding enough markets and workers is only part of the problem, Marc said.

“The cost of operation is really just hard to get over, it just keeps going up,” Marc said. “I can see where this younger generation is like, wait a minute, what am I doing now, and why?”

Risk vs Reward

For those in the younger generation who decide they do want to take on the challenge, a family logging business succession plan will only work if they truly want it to work and value some things more than money.

“For the younger generation, you can’t make them choose this, these decisions have got to be their own,” Steve said. “The risk versus reward is what you look at, and place values on certain things like independence.”

“I have that here and that’s what I enjoy,” Eric said. “I love the independence and I love that I’m in control of my own destiny. I work just as many hours here as I did in the mill, I’m making less money here than I did there, but I still prefer it.”

“Although I do love being a logger, I do have a great concern for our industry's success and long term viability in terms of the affordability of transitioning businesses, being able to offer appropriate compensation to attract the right kind of labor and keeping up with the rising cost of everything,” Eric added. “I'm concerned a lot of loggers won't transition because they can't find enough monetary reward to balance out all the risks associated with our industry."

Hanington Bros. is celebrating its 63rd year this year. Steve has run the company for three decades, and while things have been tough in logging in recent years, he believes better days are coming as Maine’s forests continue to grow and the demand for the versatility and renewability that wood and wood fiber offers continues to increase.

“I think there’s tremendous opportunities for that next generation,” Steve said. “Yes, there’s challenges right now but I ran this company for 30 years almost, and I believe Eric can be successful for another 30 years.”

Eric agreed.

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I know personally I’m in this thing for the long haul,” Eric said. “If there are trees in Maine to cut and a place to market them, then I want Hanington Bros Inc. to be one of the businesses doing it. I’m confident enough to know that I can do anything else for a career, but I choose to be a logger.”