From the October 25, 2002 print edition

NKU business center focuses on families

Succession issues trip up many transitions

Judi Ketteler Courier Contributor

When Gary and Carl Ward began working at their father's taxi business 41 years ago, retirement was hard to fathom.

But the years went by, the brothers took over the business and eventually had children of their own. Suddenly there was another generation to consider, and succession planning loomed large.

"It's amazing that we waited this late in life to deal with these issues, but we didn't know how complicated it could be," said Gary Ward, co-owner of Executive Transportation in Newport.

The complicated nature of family business, especially the tax and legal issues surrounding succession planning, is precisely why the Family Business Center at Northern Kentucky University exists.

Fifteen years ago, Sutton Landry came to NKU as the director of the Small Business Development Center and quickly discovered a whole set of issues facing businesses that he had not considered.

"I began to see companies with issues that the SBDC wasn't equipped to handle," said Landry.

Landry began putting together a task force to study the feasibility of opening a family business center at the university, and in 1999, he got the go-ahead and launched the center.

The Family Business Center is a membership-only organization. It's distinguished from the other 130 similar programs at colleges and universities around the country in that membership in NKU's program is available to family businesses only, not advisory people such as attorneys, bankers or insurance companies.

As members, family businesses are invited to attend monthly seminars and informal roundtable discussions. By the end of this month, Landry expects the center will have about 30 member firms.

There are two sets of planning issues the center helps address: family strategic planning and business strategic planning. About half of the seminars deal with issues specific to family businesses, and the other half have a broader focus on business in general — such things as leadership, human resources and business development.

Many family businesses first come to the center because of succession planning issues. It's not surprising that this would be foremost on their minds, Landry said, considering that the survival rate for family businesses as they pass from the first generation to the second is around 33 percent. That rate decreases significantly as the business passes to the third generation, hovering around 12 percent, he said. And, Landry added, the rate for survival of a family business as it moves to the fourth generation is only about 3 percent.

Landry attributes those sluggish numbers to two simple factors — taxes and legal issues. For example, if the children of the second generation receive business shares as a gift from the first generation, that second generation is suddenly slapped with a huge tax bill. And coming up with the cash to buy the first generation out of the business can be a real hardship on sons and daughters. The center helps families to understand and prepare for the financial and legal issues they face.

"Our goal is to improve those rates and help companies be successful in passing the business on to the next generation," Landry said.

Most of the speakers at the center who address succession planning emphasize the importance of getting started, said Pat Meehan Jr., an estimator at MR Label in Cincinnati.

"You have to start today, right now," Meehan said.

Meehan's father is the family company's founding CEO and is still working. There are two other siblings plus his mother working at the business, as well as a third sibling who works as a doctor and lives out of town.

The Meehan family had figured out a large part of how the business would be divided up, but the seminars through the center helped to confirm their decisions and realize the many other issues that were facing them.

"What drew us to the center was succession planning issues," Meehan said. "We've stayed because the topics covered by the seminars also address other issues like family dynamics, and business in general."

Meehan likes the fact that by attending the monthly seminars, the family is actively dedicating between three and four hours a month to discussion about these issues.

"We ride in the car together to the talks, and when we leave, we spend a couple more hours discussing it," he said.

Like most businesses, family businesses are preoccupied with the daily tasks at hand. Thinking about big-picture issues often gets relegated to the future. Plus, since most of the businesses Landry deals with have active owner-managers, it's hard to find time to be proactive.

"I think my brother and I thought we would just work forever," said Ward. "But now that retirement is closer, we realize we don't want to do it forever, and we need a plan. When we go to the seminars, it's good to see that there are others in the same boat."