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July 2014 | Construction Equipment Distribution | www.cedmag.com | 57 Just So You Know – a Guest Column It is not unusual for a family- owned business to have no formal successor plan in place. The fact of the matter is, the transfer of power from the first to the second generation seldom happens, when the founder is alive and still on the scene. Even if it does, there are certainly many chal- lenges that must be considered. If you own a family business and you want the ownership to remain within the family, you need to have a plan. In fact, in a recent survey about control of a company, 79 percent of respondents said the senior generation wants the business to stay with the family. Of those surveyed, however, only 17 percent stated they were confident of the next generation's commitment to the business. Family businesses generate intense emotions, not only for the found- ers but with other family members employed in the business. Too often, these emotions derail the smooth transfer from the older generation to the next. To complicate matters, passive owners can't appreciate the time, mental energy, risk and capital needs of operating a business; not to mention that it's not fair to require active stockholders to support the lifestyle of passive ones. I'm constantly asked, is there a "golden rule" for a family business. My response: Yes! "Ownership and partici- pation in a family business is a unique experience – not an inalienable right." I've been involved in numerous successor plans, and in some instances, some family members believe they're entitled because their name is "Jones," "Smith," or whatever. The reality is, family members are not entitled to anything, other than the potential to take over the business – if they are capable. If you're the owner of a family business and you want to begin the process of reviewing how to "pass the baton," it is extremely important to keep success from damaging the busi- ness or the family, so you need to take the sting out of some of the emotional issues, such as: 1. Identifying the values of each generation 2. Recognizing the older genera- tion's financial concerns 3. Communicating to the entire family – it's important to build up support and family unity, which means if other siblings are involved you need to share with them the entire plan – don't rush to the "transition". Remember, planning and communi- cation are essential tools to achieving a successful plan. When Ahern is involved in a succes- sor plan, we take somewhat of a novel approach. We advise the owners of a business to wear several hats and label them Dad, Mom, Boss, Brother, Grandfather, etc., so that the relatives of the employees are crystal clear on which role they're hearing from when the owner is addressing them. Additionally, when you are trans- ferring the business to family, you need to look at the family not as your children or as your relatives, but as your employees: There can only be one person in charge The rest must embrace that indi- vidual in implementing and operating the business. An easy statement to make, a difficult task to accomplish. When choosing a family successor there are captive measurements you should look for: 1. What are the successor person's personal goals? 2. Does he/she know your intent for them? 3. Will they stand in the way of or encourage family business goals? 4. Has the successor learned about the business? Is he/ she a quick study? Has the successor practiced good money management in life and work? 5. Do they have outside experience, and has the work within the firm prepared that family member for the challenges that the business or industry poses? 6. Can they learn from the mistakes they make/made? You have to recognize that you need to look at your children as employees and you need to do what's in the best interest of your company It's important to recognize that family conflicts can be one of the most difficult and destructive forces in a business. Look at the U-Haul interna- tional fiasco. Ultimately, the founder and chief executive officer was voted out of his own company by his children. Successor planning needs to begin at least three to five years before the owners plan to exit the business. Although highly emotional, if the busi- ness is to stay in the family the transi- tion process must be made sooner rather than later. Good Planning and Communication Help Family-Business Owners Sidestep Succession Obstacles Food for thought if you're thinking of exiting in the next five years. BY ANDRE W. AHERN ANDRE W. AHERN, CPCM, is the CEO of Phoenix-based Ahern & Associ- ates, Ltd., a transportation management consulting company. He can be reached at ahern@ahern-ltd.com or visit www. ahern-ltd.com.