Corrections or additions?
These articles were prepared for the November 3,
2004 issue of U.S. 1 Newspaper. All rights reserved.
Family Business: Torch Passing Problems
You built it from your own sweat and view it as your family’s legacy
for generations. But alas, the odds are powerfully against you.
Nationally, only one-third of family owned businesses survive into the
second generation. Half of those never make it from the second to the
third. That means your hard-won legacy stands but a one-in-six chance
of making it to your grandchildren. (See page 57 for a story about an
exception to the rule.)
Now it may be that your offspring have never been able to discern the
exhilaration in dry cleaning and simply do not want your shop. That’s
understandable. But the real heartbreak comes when the business fails
to transfer due to bungled planning. The many facets and pitfalls of
family business transfer are the subject of a half-day seminar,
“Getting From Point A to Point B: What the Experts Say,” taking place
on Thursday, November 11, at 8:30 a.m. at Fairleigh Dickinson’s
Florham campus. Call 973-443-8880.
Sponsored by the Rothman Institute of Entrepreneurial Studies’ Family
Business Forum, the cost is free to first-time guests as a way of
introducing them to the organization. Several Forum corporate sponsors
are on hand to bring a full range of expertise to the problems of
business transfer. Jeff Jaskol, president of the Jaskol Group,
discusses finance and planning. Legal, accounting, and banking issues
are covered, in turn, by attorney Edward Ahart of Morristown’s Schenk,
Price, Smith & King law firm; CPA Alan Wink from Amper, Politziner &
Mattia, at 731 Alexander Road; and Joseph Copko from the PNC Bank.
Financial planner Jaskol knows from experience that all business
involves personalities – and that not all personalities mesh in
perfect synergy. A Garden State native, Jaskol was born and raised in
Willingboro. After graduating from Wharton School of Business, and
gaining an M.S. in financial services from Bryn Mawr, Jaskol took his
skills to market with Mid-Atlantic Finance.
After 15 years, Jaskol felt the entrepreneurial urge and partnered
into his own firm in l997. “It was a three year struggle,” he notes,
“and suffice it to say not all partnerships work out.” In 2000 he
founded the Jaskol Group which, linked to MassMutual Insurance, guides
all size companies on financial matters from tax law to fiscal design.
Keeping the business in the family – and keeping individual family
members happy with their roles within the business – is not easy, but
it can be done. Here are some tips:
The no-plan plan. “We see a man of 65 still governing his own business
and we all congratulate him,” says Jaskol. “but we see some guy still
fumbling with the firm’s purse strings at 95 and we think he’s nuts.”
Most successful entrepreneurs have about 20 years after their business
has grown to maturity before conditions will force them to let go. Yet
Jaskol warns people not to count on these leisurely two decades.
Unfortunately, most owners wait until physical and mental health or
outside financial pressures overwhelm them into making a hasty
transfer. Planning from a position of control rather than trying to
initiate a plan when finances and abilities are foundering will
doubtless lead to an easier, more satisfactory transition.
The King Lear plan. One of Shakespeare’s most pitiful tragedies spins
the tale of an aged man who transfers all his holdings to his
children, leaving himself forever dependent on the kindness of family.
Lear wanted only to let go the reins and, as he put it, “unburdened
crawl towards death.” A justifiable sentiment for a man who has
labored a lifetime at the helm. Yet he ended up in rags on a rainy
moor cursing his serpent-toothed children – an unenviable example
followed since by many business owners. Jaskol advises that the
transfer of a business should provide two things: security for the old
owner and opportunity for the new family member taking charge.
Obviously a balance must be struck. It is seldom possible to guarantee
the retiring owner a lifelong financially secure situation and still
give the children ample capital to make great strides in expanding the
business. Any transfer plan requires adjustability clauses, allowing
for flexibility in the face of an uncertain future.
Equal versus equitable. Unless one father solely owns a business,
which he passes on to his only child, transfers involve more fingers
in the pie. There exists only one business, an entity that maintains
its greatest value if it can remain whole and operating. So who gets
how much? This is a question that tested the wisdom of Solomon.
If a parent has three children, giving each one-third seems an equal
and just division. But for the one child who has been working with the
parent, slaving daily in the business for the past 15 years, a one
third share is scarcely equitable. “The trick here is communication,”
Jaskol points out. “Sweat equity and other values must be considered
and planned for. It’s probably not a good idea to make the precise
percentages of division common knowledge, but if family members know
that they will be taken care of, it can make for a lot less grim
Thanksgiving dinner.”
Employee trauma. Every time their company changes hands, employees
naturally grow jittery. Even if the new boss is a family member, he
remains an unknown quantity who threatens their security.
Additionally, when the new heir falls into the presidency by the good
fortune of birth, all those employees who have labored loyally for
years may be inclined toward resentment.
Jaskol suggests that this is the time for creative incentive programs.
Unfortunately, family business do not have the obvious choices of
larger corporations. Giving stock options to individual employees
where the family itself closely holds the vast majority of voting
shares provides no real incentive. And the transfer of a family owned
business to a employee-owned one typically creates some fiscally
clumsy camels. Instead, using non-qualified plans, such as deferred
compensation programs, can both reward veteran employees for
achievement and increase general morale.
The whole concept of the transferable family business has proved a
pillar of the American experience and its dream. Each new wave of
immigrants creates its own business niches, and hopes to see them grow
into successful enterprises. In truth, very few find great success in
the first generation, but they labor on unconcerned, hoping to have
something to pass on to their children. How much of the dream actually
ends up in the hands of the next generation depends on the care and
planning that has takes place long before the transfer.
– Bart Jackson
Top Of PageFamily Business: No Problem
Don Veth Sr. didn’t need a bunch of consultants to help him with the
problem of succession in his family business. His two sons, Don Jr.
and Jim, were ready to take his place.
“We’re both vice presidents,” says Don Jr., “and we both can do
everything. I do more office work, and Jim does more of the warehouse
work. My father started this when we were in high school, and we
always helped him.”
“The building industry has been booming,” says Veth. The family moved
its 30-year-old business from 4,700 feet at 1590 Reed Road, in the
Reed Road Industrial Center, to 10,000 feet on Sylvia Street, and they
have a new phone and fax. A wholesaler to the trades, Auxiliary
Service & Hardware sells contractor’s supplies such as power tools and
fasteners – nails and staples. It has 10 full-time and two-part time
employees, and it owns three trucks and a van.
“We get a lot of consultants who want to help us,” says Don Veth Jr.,
“but we belong to a trade group, Specialty Tool and Fasteners Dealers
Association, that can help us with what we need.” He and his wife,
Diana, who does the bookkeeping, will go to the annual convention in
San Francisco next week. Don Veth Jr. went to Mercer County College
and to night school at Rider University. Brother Jim also attended
Mercer and the College of New Jersey, and he owned a lawn service
franchise, then joined the company when his father retired.
“My father worked in this business as a sales rep for Bostich,” says
Veth. “Back then it was a lot of packaging and industrial products. We
used to sell staples for closing boxes to Hill Refrigeration and the
porcelain factories, but that business disappeared. Now we do a little
bit of maintenance but most of our business is construction.”
Their nearest competition is in Bensalem, unless you count Home Depot
and Lowe’s. Actually, says Veth, Home Depot’s arrival made the Veths
more efficient. “We changed our product line and we thinned back.”
Some business isn’t worth having, he declares. “The power tool
business is not like it used to be. The big stores sell them at cost
to get people in the store. We do really well with Hitachi and Max
pneumatic tools, and also with fasteners. We import our own
fasteners.”
Most of their wares are delivered directly to the construction site.
While two of the four vehicles are out on the road, the other two are
being loaded for the next day’s delivery. “Everything we sell is
heavy,” Veth says. To build a house might require six or eight cases
of three-inch coil nails, each case weighing 45 pounds. “We have
forklifts, but you can’t be a weakling.”
At first the Veths wanted to move to Hamilton, and they tried four
locations. “They just didn’t let us in,” says Veth. For one industrial
area, the zoning was wrong, and it would have required three to six
months to change it. “Ewing seemed a lot more friendly,” says Veth. “I
give high praises to the building inspectors in Ewing. We gave them
our drawings, they approved them, and we were able to move in
quickly.” Their realtors were Mark Hill and Jon Brush of Hilton Realty
(which is also the landlord), and their space was designed by
Hoisington Engineers. Their attorney is Gary Backenof and their CPA is
Merrill Jones.
The family business succession question may, nevertheless, loom later.
“I have one 11-year-old boy,” says Veth. “He comes after hours and on
Saturdays and marks prices. He enjoys it, and sometimes he is helping
me. I don’t want to tell him what to do at his age, but he is welcome
if he wants to.”
– Barbara Fox
Auxiliary Service & Hardware, 802 Silvia Street, West Trenton 08628.
Don Veth Jr. and Jim Veth, vice presidents. 609-530-0077; fax,
609-530-0086.
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