Family Business: No Problem

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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 Page
Family 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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