Baby boomer wealth leads to business for DWH
Local firm is growing, with a new partner and a new office in Detroit.
DWH, a Grand Rapids business advisory firm launched in 2006 by Doug Wilterdink, has gone from a two-person staff to 30 and just opened an office in Detroit at the request of wealth management companies that refer DWH to their clients. The firm also has added a new partner, Kirk Koeman.
The growing firm, headquartered at 180 Monroe Ave. NW downtown, offers a variety of consulting services to small and mid-sized, closely held businesses, particularly family businesses. The DWH group is not made up of wealth management advisors but rather provides consulting services regarding business ownership transition and succession planning, as well as turnaround and restructuring services when a company is insolvent or in distress.
“A lot of this is tied to that baby boomer transition that’s going on,” said Wilterdink, explaining that many boomers who launched successful family businesses decades ago now are facing retirement. The companies DWH serves have annual revenue of $200 million or less.
In a recent article about the coming flood of inheritance of the baby boomers’ assets, New York Times Magazine reported that “in this new Gilded Age, rich Americans are more likely to have made their own fortunes than to have inherited them.”
The author of the article, Annie Lowrey, noted that family money “gets chopped apart as it passes from generation to generation,” and cited the saying, “From shirtsleeves to shirtsleeves in three generations,” referring to the generation that builds the wealth, the one that expands it and the one that spends it and has to start over.
That transfer of business assets sometimes brings consultants like DWH into the picture.
“We do mostly turnarounds,” said Wilterdink, adding that if an ailing company cannot be saved, the mission is to maintain its maximum value as much as possible, pending the owner’s exit from the business.
In the case of a distressed or insolvent company, he said DWH is not doing bankruptcy work but rather is trying to “fix the company” before it is forced into bankruptcy. He added, “The vast majority of our turnaround work is business transitions that went bad.”
Wealth management professionals are a primary source of referrals for DWH because the larger the amount of money the managers are managing, the more they earn. When a wealthy client begins to lose money, wealth managers want to do something to reverse that — for the client’s benefit, of course, but also in their own interest.
Wilterdink said there are a couple of typical transition situations that make wealth managers concerned about the future of a client’s assets. Many wealthy individuals who started and ran a prosperous family business for decades want to pass it on to a son or daughter, and sometimes the younger generation lacks the skills and preparation to effectively take over management of the company. Then when the company begins seriously losing money, the parent may end up pumping some of their life savings back into it.
The other situation is when the founder/owner sells the company to management employees or to a third party, and loans the buyers money to make the deal happen. If the new owners run into financial difficulties, they may default on the loan. In those cases, the referral to DWH may come from a bank or other creditor who does not want to see the business suffer and possibly fail.
“More commonly for us is the family transition,” said Wilterdink.
Sometimes the younger generation is more than happy to take over the family business but isn’t ready to handle the intricacies of running it. In other cases, the parents want to pass on the business to a son or daughter who doesn’t have a high level of interest in it.
“But they don’t want to defy Dad, so they go along with it, and then they end up with a business that they are not passionate about at all,” he said.
Wilterdink said the problem is company founders who mix up their family priorities with business priorities — which ought to be clearly defined and kept separate, he said.
“It you want a way to destroy a family, have a family business that’s in trouble,” said Wilterdink. “We advocate taking the time to embed your family in your business in a variety of positions.”
Wilterdink, a CPA with a degree from MSU, has been doing turnaround work or corporate restructuring since 1983, when he veered off from an accounting practice to work for Shaw-Walker Co. in finance. The Muskegon office furniture company owned a number of smaller companies then — “all losing money. I became responsible for the turnarounds there,” he said.
Later, when Shaw-Walker was sold, Wilterdink left to buy a small, distressed company he had found called CoroTech Co. “I figured if I could do (turnarounds for Shaw-Walker), I could do it for myself,” he said.
He had partners in this new turnaround project — engineers with expertise in the company’s market, which is heavy industrial construction. Wilterdink and his partners succeeded and sold the business in 2001; it is still in business today.
“I became the entrepreneur,” he said of his experience, and that achievement gives DWH a practical advantage. “We can empathize, we can communicate with entrepreneurs because I am an entrepreneur at heart,” he said.
He concedes the role DWH plays can be a “delicate spot to be in,” especially when it is restructuring a family-owned business that suffered in the transition from one generation to the next. “The solution is to get people refocused on the business,” which will ultimately preserve the wealth of those family members, said Wilterdink.
“It always comes down to leadership,” he said, which entails the recognition and implementation of good strategies and effective systems, and wise decisions in hiring professionals to help manage the company. “Bad leadership gets installed because they’re family,” he said, “not because they are presumed to be good leaders.”
Business leaders, he said, must know how to adapt to market conditions.
“Good leaders can do that even in down times, and the bad leaders can’t. They’ll let the bad market conditions control the circumstances and they just watch the value of their business erode,” he said.
While DWH got its start turning around failing companies, it eventually began to become more involved as a consultant in the transitions — precisely to help prevent the need for a turnaround later. Wilterdink said DWH is “increasingly migrating from the cure to the prevention.”
Two other professions are always involved in a transition — accountants and attorneys — but they are focused mainly on the transaction of the transition, while DWH is “focused on what drives value in the business.”
Wilterdink said he is not aware of any other firms in the region that do what DWH does.
“I’m not aware of any focused on the prevention,” he said.