Many family businesses fail to survive to the third generation, but planning ahead and putting everything in writing can assure transitions from one generation to the next occurs smoothly.
It was a point repeated to more than 120 local business executives Thursday during the Daily Herald Business Ledger Newsmakers' Forum on Managing a Family Business at the European Crystal Banquet & Conference Center in Arlington Heights.
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Warren Jacobsen, president and founder of Horizon Capital Advisors LLC in Bloomingdale, was among the panelists who stressed the need for family business owners to have a succession plan in place well before it is needed. More than 70 percent of family business owners in the nation do not think about succession until they are near retirement, he said.
It is also important for owners to assess the business and decide if they are running it as a lifestyle, or if their goal is to build wealth.
"If you think your strategy is to maximize net worth and value, then the greatest wealth-destroying thing you could do is to manage a business to keep everybody in your family happy and to use the business as the family ATM," Jacobsen said.
There are several options for assuring family autonomy in business, from setting up annual meetings to developing and reviewing business plans to getting regular value assessments of the business. Likewise, when it is time to sell, there are many options available to assure active and nonactive family members can benefit from the sale.
David Hight, a partner in the law firm Ice Miller LLP in Lisle, added that the key to successfully running a family business is to "communicate early and often, and also put it in writing."
Hight noted that the creation of bylaws can help define a family member's responsibilities and give direction on what he or she can and cannot do. He stressed that such documents are important for all family businesses, regardless of size, noting that high-profile family business battles also happen in small businesses.
"Families have different dynamics, but the issues are the same," Hight said. "The message is if you can plan for these things and spend a little money upfront to get those problems dealt with and attended to, this can allow the business to continue to survive,"
Lisa Tomsheck, a third-generation owner of turf and ornamental supply company Arthur Clesen in Lincolnshire, said seeking advice and consultation through a third party can help a business owner in dealing with family and business decisions and issues. Tomsheck is a member of the Chicago Family Business Council at DePaul University's Dreihaus College of Business, which she called "the magic bullet" in helping her run the business.
"I get a place that's very safe, very comforting, and I get to share the good, the bad and the ugly and I get no judgment," she said. "It's very powerful."
Recent changes in the state's business trust laws also allow a third party to manage the trust while family members retain ownership, according to John Matejcak, vice president with First American Bank Wealth Management Group. Bringing in the third party can help resolve control vs. ownership issues, he said.
"This is a pro-business move and a pro-trust move," Matejcak said.
Jacobsen best summed up the priorities of assuring a well-managed family business.
"The legacy of your firm is not nearly as important as the legacy of your family," he said.
Presenting sponsors for the event were Horizon Capital Advisors LLC, DePaul University Dreihaus College of Business, the Chicago Family Business Council, Ice Miller LLP, First American Bank and AM 560 The Answer.