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Handing it over
Monday, March 29, 1999
A succession plan is needed if a family business is to be passed on successfully from one generation to the next
by Keith Ervin
Nancy Williams and her sisters beat the odds when they bought their father's electrical-contracting business.
There comes a time in the life of every successful business when it's time for the original owners to sell or move on. But when it comes to family-owned businesses, only one in three is passed on to the second generation. Just 15 percent reach the third generation, as did the business founded by Williams' grandfather.
Too often, the owners of family businesses don't resolve the question of who will succeed them until it's too late.
But when Bill Snelson prepared to sell off the electrical-contracting part of his Snelson Companies in Sedro-Woolley, his daughters stepped up to the plate. They negotiated a purchase price and a payment schedule.
Williams, who began working for her father as a teenager, became president of the new company, Seven Sisters. A second sister, Chris Thompson, was installed as vice president, and a third, Julie Stuart, joined the company later.
Snelson's four other daughters, shareholders all, are not involved in the company's day-to-day operations. Since buying the company in 1981, the sisters have expanded its work from private projects to jobs for Metro and other public agencies. Forty union electricians and other employees are on the company's payroll.
Snelson's reaction to his daughters' success? "He thought it was wonderful, absolutely wonderful," Williams recalls. Her father died 2 1/2 years ago.
Succession in a family business can be traumatic.
"Usually the transition happens at a funeral. It doesn't take a lot of brains to know that's not the right time," says Patricia Frishkoff, founder and director of the Austin Family Business Program at Oregon State University.
The overwhelming majority of family-business owners say they want to pass their businesses on to someone in the family. Yet a 1997 survey of family-business owners by Arthur Andersen and MassMutual revealed that one-third of chief executive officers who were older than 61 and expected to retire within five years had not selected a successor.
Nor had a successor been named by half of the 50- to 60-year-old CEOs who planned to retire within five years.
Sixteen percent of business owners insisted they would never retire.
In many cases, Frishkoff says, business owners don't deal with the succession issue because neither the parents nor children know how to communicate about issues such as money and the inevitability of death. The children may be thought greedy if they broach the subject.
But without a succession plan, the business might fall into the hands of someone unprepared to run it. Or the family might be forced to sell it for less than its worth.
Experts say a smooth transition is all but impossible unless a clear succession plan is adopted years before the transition takes place.
Picking a successor may not be easy. Should the business be run by the eldest son? The son who joined the business first (perhaps because he couldn't hold down a job elsewhere)? The daughter who quit because she concluded Dad would never let go of the reins? The operations manager who isn't kin but knows how to run the business?
Some parents require their children to get several years of work experience elsewhere before joining the family business.
Then there are the fine points of ownership, tax liability and legal contracts. Some experts suggest assembling a succession team with legal, accounting and financial-services experts, and perhaps even a psychologist skilled in conflict resolution.
A written plan is essential. But the transition itself can be quite informal, says Bob Nuber, a family-business specialist at the Bellevue accounting firm Clark Nuber.
"It kind of evolves," Nuber says. "People talk about it and they know what's going to happen. They say Dad's going to move up to chairman and Pete's going to move up to president and it's going to happen on this date. It just gradually happens and the successor gradually takes over more authority."
Snelson continued running his mechanical-contracting business after selling the electrical-contracting division to his daughters. When he was ready to sell the mechanical divisions, the sisters decided their hands were full enough managing Seven Sisters. He sold the remaining business to employees.
Now Nancy Williams and her sisters are talking about who will succeed them. There are 11 children in the next generation, ranging in age from 6 months to 27 years.
No final decision has been made. The business could be handed off to children, it could be sold outright, or it could be sold to employees.
"There's more than one option," Williams says. "Just because you've been a family-owned business doesn't mean you have to be one."
It's a choice they plan to make consciously, not by default.
Keith Ervin's phone message number is 206-515-5632. His e-mail address is: firstname.lastname@example.org.
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