Generations, Relinquishing the Family Business

Article From: Products Finishing, , from Products Finishing

Posted on: 11/1/1998

Most finishing job shops are considered small businesses.

Most finishing job shops are considered small businesses. Most are still family owned and operated. Many are managed by the second- and third-generation family members. However, did you know that according to Industry Week 70% of family businesses do not survive the second generation and, of those that do, only 10% are likely to be around after the third generation?

Joe Leonhardt of Leonhardt Plating, Cincinnati, Ohio, is a third-generation plater. His father, Dan, is still president; however, he and his brothers, Scott and Kevin, will more than likely operate the business Joe's grandfather purchased in 1950. Jaime Maliszewski of Reliable Plating, Milwaukee, Wisconsin, is also a third-generation plater. His father, John Maliszewski recently retired; however, he kept his hard-earned and comfy office at the plant. John's father bought into Reliable Plating in 1929.

These are examples of successful management transfers in family-owned businesses. However, incidences exist where succession has not been smooth. Edmund W. Rothschild, chair, Family Business Succession Planning LLC, notes common reasons family business leaders fail to plan for their successors.

  • Owners/managers do not recognize their own mortality.
  • Reluctance to hand over "their" business.
  • Tough decisions (deciding which child will be president, for example).
  • Need for secure retirement income.
  • Failure to recognize that contingencies are needed in case of sudden accident or death.

Mr. Rothschild urges that succession never be tax driven, but based on sound management principles.

Families need to work as partners not adversaries. David Gage, founder of Business Mediation Associates, suggests families develop a "family partnership charter." This should be a written document that helps family businesses accomplish the following.

  • Determine what each family member brings to the business and expects from the business.
  • Have everyone brainstorm about all possible business scenarios, particularly topics people don't want to think and/or talk about.
  • Determine business roles and responsibilities.
  • Determine how you will keep communication lines open even during conflict.
  • Detail how family members can get out of the business.
  • Try to understand each person's personal style and values.

The complete article was published in the September 1998, edition of Industry Week. Or you can read it on the magazine's Website at http://www.iwgc.com.

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