It’s beautiful when ownership at a successful family-owned remodeling company passes to the second generation. It’s also not without heartbreak.
I’ve visited companies where the up-coming-but-not-yet-owners were tyrants with staff and, with the tacit permission of their parent(s), took every advantage of their positions. More commonly, I’ve interviewed each generation separately only to find a total disconnect in what each thought would happen and when.
Essential To Success
Surveys show that just 30% of family businesses successfully transfer to the second generation and only 10% make it to the third. Here are some thoughts based on my experiences with some great second-generation owners:
- Allow enough time. Once you and your son or daughter have decided to pursue this, think in terms of a three-to-five-year timeline.
- Develop a path. It consists of defined skills that must be learned and milestones passed to safeguard the successful transfer.
- Seek outside help. Abe Degnan of Degnan Design Builders, in DeForest, Wis., has been through this journey in taking over the company from his dad and says his best piece of advice is to “work with several trusted advisers like an accountant, attorney, and mediator or coach.”
- Document procedures. The better systematized, the better staffed your company is, the safer the transfer will be. Annette Parrish, who along with her husband, Larry, purchased Parrish Construction Co., in Boulder, Colo., from Larry’s dad notes that the transition, while smooth, “would have been smoother if we’d had written procedures and documentation of the first 20 years of the company.”
- Have a written plan. How will the company be valued and how will that value be transferred? When will the transfer occur? How and when will the first generation exit? What role(s) will they play until then?
- Use a peer group. In an owners’ group the next-generation owner can learn to read financials, hear stories of success and failure, develop his or her own group of mentors, and learn to think like a CEO.
In the best of all worlds, the values of the first generation will endure but the business will evolve to meet the realities of a new owner. Paul Karofsky, director of the Family Business Center at Northeastern University, puts this transfer of business legacy in perspective: “The successful perpetuation of your family business just may be the closest you will ever come to immortality.”
—Linda Case is founder of Remodelers Advantage. 301.490.5620; firstname.lastname@example.org; remodelersadvantage.com.
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