Experts: Keep 'business' a priority in family business

Maintaining a family-run business can be as tricky as keeping the peace at Thanksgiving dinner, but advance planning can assure the business remains viable as it moves from one generation to the next, according to a panel of experts at the Daily Herald Business Ledger's Newsmakers' Forum on Managing a Family Business Thursday.

About 125 suburban business leaders and entrepreneurs were on hand at Medinah Banquest in Medinah to hear the speakers discuss the challenges of running a family business.

Family-owned companies present a unique set of opportunities, but family bonds, emotions and money also create a unique set of challenges in maintaining a harmonious and profitable business, the speakers emphasized.

“Any time you combine family and money, it is powerful and energetic, but it can also be toxic as emotions get the best of us,” said Robert Bartell, managing director at financial advisory and investment firm Duff & Phelps in Chicago. “Each and every family business is unique in the way it operates and what it stands for.”

Ken Clingen, managing partner at the law firm of Clingen, Callow & McLean in Wheaton, said 60 percent of family business successions fail because of “family dysfunction,” while another 25 percent fail because the heirs were not sufficiently prepared to take over the business.

“There needs to be a balance of the family, the employees and the business itself to make sure it is able to sustain itself after the top person leaves the business,” Clingen said.

The panelists agreed that adopting a business succession plan well before a transition takes place can help assure the business continues to operate smoothly.

“Estate planning is a tricky business and you can never start it too soon,” said Christopher Gilligan. senior vice president of Wintrust Wealth Services in Chicago. “There are all sorts of situations that need to be talked about. It is not something you should do three months before the sale of the company.”

Keeping family bonds out of business decisions is difficult but necessary, the panelists said. While the business owner may want to provide for all siblings in the business and keep them involved when it's time to pass the enterprise to the next generation, the reality could be that family members are not ready, not interested or not suited to take over the company, they said.

“The question you have to ask is, ‘Do I want to keep the business in the family?' and if so, who will run it?” said Leo Misdom, principal with accounting firm Dugan & Lopatka in Wheaton.

Misdom and Clingen said alternatives, such as hiring a professional business manager or selling the company, are workable options if a family member is not ready to take over or if no successor is available.

“The sale of a family business is not a failure,” Clingen said. “If it is sold strategically at the top of the market, it becomes a good business decision.”

The panel also noted that cuts in the federal capital gains tax and other business tax benefits enacted by the Bush administration will expire at the end of the year, and that could have a huge impact on businesses next year if Congress makes no move to extend them.

Misdom said the capital gains tax will increase from 15 to 20 percent, while the tax on dividend income will go from 15 percent to the highest tax bracket for the individual company, which could be as high as almost 40 percent.

“Add Illinois' 5 percent (tax), and you're paying 45 percent on your dividends when you were paying 20 percent,” Misdom said. “If the breaks are not extended, it will hurt everybody.”

And while most people think “local” in family-run businesses, Bartell stressed that local businesses are a part of the global economy. He said 25 percent of the business for one of his clients is conducted with customers in China, while another Addison-based company sells its product to Moline-based Deere and Co. for equipment Deere sells around the world.

“No matter how small and local, we are all affected by the global economy,” he said.

Presenting sponsors for the Newsmakers' Forum were Clingen, Callow & McLean, Duff & Phelps, Dugan & Lopatka ABD Wintrust Commercial Banking. Event partners were the Addison and Fox Valley chambers of commerce, Greater O'Hare Association and Benedictine University.