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Business 101: Family-Business Planning

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Last April 73-year-old Herman Shooster flew from Florida to Texas for surgery on a stomach aneurysm, a procedure that would keep him from running his company for two months. But the chief executive of Communication Service Center (CSC), a teleservices company with more than 400 employees in Margate, Fla., felt confident that he had left his business in capable hands. After all, his children--Stephen, Frank, Michael, and Wendy Shooster Leuchter--had been practicing for years. They had, for example, run the company while their parents had gone on an extended vacation, and gradually they had become accustomed to making decisions without their father's input.

That's the way it should be. If you're thinking about leaving your business to your children, "succession is more of a process than an event," says Mary Ceynowa, consulting manager at the Family Business Group, a Minneapolis-based division of McGladrey & Pullen, a national CPA and consulting firm.

Unfortunately, too many business owners don't see it that way. According to a recent Arthur Andersen/MassMutual survey, the leadership of 43% of family businesses will change hands within the next five years. However, nearly a third of those family businesses with CEOs age 61 or older have no designated successor. That's a recipe for disaster. But whatever your age, if you're considering passing your company on to your children someday, there are some questions you should begin asking yourself. Now.

What's your vision of the company's future? Now that you've begun thinking about succession, forget about it for a minute. According to Mendy Kwestel, director of entrepreneurial services at the New York City office of Grant Thornton, a national accounting and management-consulting firm, "the first thing you need to have is a strategic plan that tells you where the business is going. That will determine the type of person you want to succeed you. Then you ask yourself who your candidates are." If you find that your kids don't make the short list--or they just aren't interested in managing the business--you may need to separate the management and the ownership of the company. According to Kwestel, you might consider setting up a voting trust, in which ownership of the company remains in the family but all voting rights are passed on to professional trust managers, who are usually a team of seasoned nonfamily advisers. If your children are management material but haven't had enough experience, consider hiring an interim CEO to smooth the transition period.

Last updated: Jul 1, 1998

DONNA FENN is the author of Upstarts! How Gen-Y Entrepreneurs Are Rocking the World of Business and 8 Ways You Can Profit From Their Success, an exploration of the ways Gen Y is changing the entrepreneurial landscape.
@donnafenn




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