Business owners hope children will join them

ALL IN THE FAMILY

January 21, 1991|By Michael Enright | Michael Enright,Special to The Sun

An article in last week's MBW gave an incorrect spelling of the name of a family business specialist with Ernst & Young who was quoted regarding the problems of succession in such businesses. In fact, the man's name is Bruce Bullock.

MBW regrets the error.

Of the images that make up the American dream, the family business rests right up there with mom, baseball and apple pie.

A recent study by BDO Seidman, a national accounting and consulting firm, showed that 75 percent of business owners want their children to eventually come on board and help run the company. The main reason: family pride.

FOR THE RECORD - CORRECTION

Family pride can bolster a company's commitment to its product and service while also allowing the family to take a long-term view of the company, rather than trying to realize short-term profits.

In addition, children have always been attracted to the family company because it can afford them opportunities they might have to wait years to attain by working somewhere else.

But even the glorious history of family businesses in this country and the apparent willingness of fathers and mothers to pass on the company can't hide the fact that a successful transition from one generation to the next is difficult.

Indeed, research shows that even when a family is successful in turning over the business to the next generation, the odds only become higher that subsequent generations will run the business under.

In some cases the disintegration of a family business cannot be avoided. There is no financial strategy or leadership plan that can withstand the blood feuds often waged between fathers and sons, husbands and wives, brothers and sisters, even in-laws and spouses, particularly when the family empire is at stake.

"Father and son may be great pals as father and son but when they become co-owners or co-workers things can become quite different," said Edward H. Kelley, a Reisterstown CPA who handles family business accounts.

In many other situations, the period of succession from parent to children is a painful one, with the owner/parent unwilling to let go completely and the children squabbling among themselves about their new responsibilities or shunning their parents to run the business the way they see fit.

"It's probably the most challenging task anyone would have to undertake in business," said Peter Davis, director of family business studies at the Wharton School of the University of Pennsylvania. "It takes a really strong commitment."

More often than not, if the owner of a business takes the following steps years before the succession is to take place, the chances of the business surviving and prospering are greatly increased, family business experts say:

Expose Children to the Family Business at an Early Age. In those cases where the parent has a business and younger children, financial consultants and common sense say the earlier you instill them with a work ethic and the sense of accountability and personal satisfaction that can be gained in running your own shop, the better the chances that they will bring these traits with them as they get older, whether or not they decide to join the family business.

Family business consultants say the owner should start their children slowly, perhaps by giving them a few hours of work each weekend doing cleanup or a straight 40-hour-a-week summer job as a stock person.

Mark Habicht, who runs Kirk-Habicht Manufacturing in Baltimore County with his father, says he started by coming into the shop during snow days when school was canceled. He eventually began a work-study program that allowed him to leave his high school at noon at work at the family business until 5 p.m.

"By the time I started working at the company after high school, I already had the equivalent of three or four years of full-time experience," he said. "I was able to hit the ground running."

In the same respect, the parents should also allow, indeed encourage, the children to explore interests outside the company business, even after they have graduated from college.

Adopt a plan of succession. The most common reason a family company goes under occurs when the owner tries to make a transition from one generation to the next too quickly and without the input of others -- not only family members but objective outsiders, too.

"It can work well if you lay the groundwork," said Bruce Wollock, a family business specialist with the accountant firm of Ernst and Young. "But more often than not, people don't, and most second-generation family businesses get wrecked."

There are several ways to implement a plan of succession, but the successful ones usually focus on open lines of communication between family members throughout the process.

In some cases, families may want to bring in counselors to help guide these emotional discussions and prevent any bitter infighting from clouding the economic picture. Also helpful in these meetings are financial and legal consultants, who can unravel the complexities of turning over a business.

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