“I was groomed to take over, like a veal calf. They kept me in that con­fined area in the kitchen so I didn’t get too big”

Suc­ces­sion plan­ning is trick­ier with rel­a­tives in the mix “There’s up­wards of 5 mil­lion boomer own­ers”

Bloomberg Businessweek (Asia) - - CONTENTS - Lewis Braham

For more than a half-cen­tury, Mr. Bart­ley’s Burger Cot­tage has been a Har­vard Square in­sti­tu­tion. Six days a week, col­lege stu­dents line up around the block for cre­ations that in­clude the Peo­ple’s Repub­lic of Cam­bridge, a ham­burger topped with coleslaw and Rus­sian dress­ing, and the Chris Christie, which is for­ti­fied with mari­nara sauce and moz­zarella. Gen­eral Man­ager Bill Bart­ley was born in 1960, the same year his fa­ther, Joe, started the Cam­bridge, Mass., restau­rant. Although all four of his sib­lings have worked there at some point in their lives, Bill is the only one still there. “I was groomed to take over, like a veal calf,” he jokes. “They kept me in that con­fined area in the kitchen so I didn’t get too big.”

Mr. Bart­ley’s is some­what of a rar­ity: Only about a third of fam­ily-owned busi­nesses sur­vive into the sec­ond gen­er­a­tion, 12 per­cent make it into the third, and a mere 3 per­cent to the fourth, ac­cord­ing to the Fam­ily Busi­ness In­sti­tute. “Suc­ces­sion plan­ning has be­come a hot item with ev­ery or­ga­ni­za­tion we work with,” says Cas­tle Wealth Ad­vi­sors’ Gary Pitts­ford, an In­di­anapo­lis-based fi­nan­cial plan­ner. “There are more than 27 mil­lion closely held busi­nesses, and baby boomers are now in that 65 to 70 age bracket. There’s up­wards of 5 mil­lion boomer own­ers try­ing to fig­ure out what to do.”

Fam­ily own­er­ship adds a layer of com­plex­ity to suc­ces­sion plan­ning be­cause there are more stake­hold­ers in­volved than in a reg­u­lar busi­ness. Char­lie Haines, a fi­nan­cial plan­ner at Kin­sight in Birm­ing­ham, Ala., rec­om­mends fam­i­lies start work­ing out suc­ces­sion is­sues at least seven years be­fore the founder plans to re­tire. An in­dus­trial psy­chol­o­gist can eval­u­ate each fam­ily mem­ber’s skills and per­son­al­ity to de­ter­mine who’s most suited to run the busi­ness. A board of di­rec­tors can also help smooth the tran­si­tion from one gen­er­a­tion to an­other, says Haines, though he ad­mits the con­cept can be a hard sell for founders: “They say, ‘I don’t want some­one look­ing over my shoul­der at what I’m do­ing.’ ”

Fi­nan­cial plan­ners say that early on in the process fam­i­lies should re­tain an in­de­pen­dent third party to as­sess the value of the busi­ness, based on cash flow, so its as­sets can be di­vided fairly among sev­eral fam­ily mem­bers if need be. When Roger Pine and his wife, Natalie—both fi­nan­cial plan­ners—pur­chased half of Bri­aud Fi­nan­cial Ad­vi­sors from his moth­erin-law in 2011, they got out­side help so fam­ily ties wouldn’t in­flu­ence the deal. “We went to a lawyer who spe­cial­izes

in buy-sell trans­ac­tions for busi­nesses,” he says. “He gave us a tem­plate for the trans­ac­tion that cov­ered ev­ery pos­si­ble it­er­a­tion of hor­ri­ble fail­ure you can think of—di­vorce, death, men­tal in­ca­pac­ity—and we had to talk through ev­ery sin­gle one.”

Bill Bart­ley’s brother Bob, a fi­nan­cial plan­ner and cer­ti­fied pub­lic ac­coun­tant based in Bed­ford, N.H., ad­vises against grant­ing shares to heirs who aren’t di­rectly in­volved in the en­ter­prise. “You don’t want out­side par­ties hav­ing vot­ing shares of stock mi­cro­manag­ing the peo­ple run­ning the busi­ness who’ve put their blood, sweat, and tears into it,” he says. In­stead, he rec­om­mends the founder pur­chase life in­surance with a value equiv­a­lent to what the nonem­ployee heirs would re­ceive in the busi­ness if they did own shares. Al­ter­na­tively, heirs could re­ceive non­vot­ing shares, so they could ben­e­fit from the busi­ness’s growth with­out con­trol­ling it.

At Mr. Bart­ley’s, Bill says he and his dad butted heads on every­thing from em­ployee ben­e­fits to burger names. Although it was Joe who in­sti­tuted the com­i­cal menu 30 years ago—an early en­try was the Liz Tay­lor, a club sand­wich with a “heavy breast” of turkey, ac­cord­ing to its de­scrip­tion—the pa­tri­arch thought his son of­ten pushed the lim­its of good taste. Joe ob­jected to one cre­ation Bill dubbed the Afghan, which on the menu car­ried the punch line, “once you at­tack this burger, you’ll never leave.” And he didn’t much like the Oba­m­as­care, which pre­miered three years ago dur­ing Hal­loween.

Bill and Joe, who is not of­fi­cially re­tired, split prof­its from Mr. Bart­ley’s, but none of the other sib­lings get a cut. “I feel as though me and the restau­rant are even,” says Bill, who be­gan work­ing at the eatery at 13. “It’s given every­thing to me, and I’ve given every­thing to it.” As for what role the next gen­er­a­tion will play, that’s still a big un­known. Bill’s old­est son is get­ting his Ph.D. in the­ater, and his daugh­ter is a school­teacher— and a veg­e­tar­ian.

The bot­tom line Just 30 per­cent of fam­ily-owned busi­nesses sur­vive into the sec­ond gen­er­a­tion. Suc­ces­sion plan­ning can im­prove those odds.

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