Multi-generation-owned businesses face unique challenges, many of which are related to what role family members will play in the company, and who will benefit.
“Family businesses are wonderful, because when times get tough, they don’t pack up and leave. They circle the wagons,” said Dave Robertson, director of the Family Enterprise Center (FEC) at the Center for Business and Professional Development at the University of Arkansas at Fort Smith. “Their business dealings are local. Their philanthropy is local. They are focused on the long-term,” as opposed to looking for a quick profit.
At the same time, with familial connection comes emotional ties.
“As parents, we want to treat all of our children equally, and that makes it very difficult when some are in the business and some not. Equal is not always fair. It’s tough not to hurt feelings,” Robertson said.
Unexpected situations can arise, leading to tough questions, he added. For example, the business might not grow as fast as a family. With four grown children who all have families of their own, “did the business grow four times also? … If the business is successful, and they’re affluent, are their kids entitled to that same lifestyle?”
Sometimes, the younger generations “don’t see how hard their parents and grandparents suffered and how hard they worked. They just see how they live now,” Robertson said.
All of this creates a dilemma, he added.
“You want the kids to earn, but you also want to take care of them.”
Because of these issues, ownership succession planning is often a key sticking point. Multi-generation-owned businesses account for 64% of U.S. gross domestic product, 62% of employment and 78% of new job creation, according to the Conway Center for Family Business.
Family business owners are retiring fast, and nearly half (43%) have no succession plan in place, according to the 2016 Family Business Survey from PricewaterhouseCoopers. In fact, 30% of family businesses successfully pass their business to the next generation, despite the fact that almost 70% express wishes to do so, according to the 2011 Peak Family Business Survey from American Management Services. The obstacles toward a successful transition are varied.
For example, “Mom and Dad need a good retirement, and you don’t want to create crippling debt for the next generation running the business.” Owners can sometimes end up “paying unnecessary taxes and penalty there,” Robertson said. The answer to all these issues lies in planning, he said. Through the process, one can make decisions about what makes sense for their family, whether it’s a sale, gifting or estate planning. FEC was founded in 2005 to help family businesses with this type of planning and other issues.
“Part of the mission of UAFS is to support quality of place and economic development of the region,” said Robertson, who joined the organization in 2009 after working in the private sector as an accountant for more than 30 years, according to the UAFS website.
FEC is intended to be a supportive, education-based program. It meets once a quarter for breakfast, and attendance usually runs at about 50 people from throughout the Fort Smith region, Robertson said. The group aims to provide a comfortable environment for open communication and sometimes intervenes in conflict, he said.
“They can take the conversation from their dinner table to our breakfast table, where the environment is supportive and objective. I like to say, ‘We don’t have a dog in the fight.’”
IT TAKES A TEAM
Presenters at the quarterly FEC breakfasts include a wide range of service providers. Robertson said businesses need to talk to an array of experts about succession: attorneys, accountants, financial advisers, insurance representatives and lenders.
“You need a team of people on your succession planning process,” Robertson said. He also recommends owners consider involving someone who will coordinate the process, a “quarterback.”
At the FEC meetings, accountants have talked about tax law, attorneys have spoken on trusts and how to structure a deal, and fellow business owners have shared what it was like to go through the succession process. It helps “if they hear from other business owners how they did their transition, what it felt like, mistakes they made, what you need to consider, who you need to involve,” Robertson said.
He also recommends business owners bring their spouses, children and key employees to FEC meetings, so they also can get a clearer picture of the intricacies of succession planning.
“That way, everybody hears the same story at the same time. The next generation of leaders can see why the exiting generation makes certain decisions” and think, “‘They’re not picking on me. They’re doing this for certain reasons to protect me.’”
STARTS AND STOPS
The ownership succession planning process is not a straight shot, Robertson said.
“There will be starts and stops and back-ups and start-overs.” However, he tells his group members it is important to start the process and start it early. The best advice for family businesses is to plan ahead, he said.
“Look down the road and prepare early. … Be proactive as far as establishing guidelines or policies for family involvement,” Robertson said. For example, if a child wants a job in the family business, a stipulation might be that the child “earn a paycheck somewhere else first, just to see what it’s like,” Robertson said.
“People don’t need to assume since they’ve got the right last name that they’re guaranteed a livelihood,” he said.
The key, he added, is to not make the decisions in the moment.
“If you do things ahead of time, it’s objective. If you wait until they’re getting ready to go to college, when it’s imminent, it can be seen as punitive.”
Along those same lines, he recommends business owners set a date for their exits.
“Don’t make your exit contingent upon a condition, like reaching so many stores, so many dollars’ worth of sales,” Robertson said. “Those situations will change. Pick a date. You can push it forward or pull it back, but this will give you a set timeline that you’re working with and let you initiate the process.”
‘HAVE TO PROVE YOURSELF’
Don Nelms, owner of Adventure Subaru in Fayetteville, has worked with his sons, David and Dennis, in different capacities off and on throughout the years. The family’s secret to success in that realm is professionalism, Don Nelms said. “If everybody treats it like a business, it works. If they don’t, it won’t.”
Although collaboration worked well for their family, the three men now each have their own projects and careers going, Nelms said.
“It was just a natural evolution,” he said. “They’ve got their own lives, and I have the same management structure in place. We kind of focus on the family. We have a good family bond. That’s the thing that overrides all other things.”
When Nelms was younger, he experienced a similar transition working at his father’s auto mechanic company.
“I loved running the shop, but then I went off to do my own thing,” he said.
Nelms has a lot of friends in the dealership business who brought on family members who didn’t have the aptitude or the desire to succeed, he said.
“It doesn’t work.”
As a third-generation member of the Sweetser family businesses, Blake Sweetser said working in a multi-generational company is harder than some expect.
“It’s not as easy as you would think. You have to prove yourself. You get what you put into it, or you don’t work here,” Sweetser said.
His family owns Sweetser Properties, Arkansas Self-Storage and Sweetser Construction, where Blake Sweetser is most involved. Sweetser Construction was founded in 1955, according to its website, and Blake Sweetser credits his father with substantially growing the businesses over the last few decades.
Sweetser said he doesn’t take his position in the family company for granted, because it’s not a given.
“Somebody else could probably get a job [with the family businesses] easier than I did, and if somebody can do the job better than I do they’re going to get the job.”