Jaswell's farm, chats with visiting
children. (Tom Croke)
When it came time for Allison Jaswell and her brother Chris to officially take ownership of their family’s 100-year-old farm and apple orchard in Smithfield, she didn’t think much of it.
“Basically, we went to sleep one night and our parents were the owners, and we woke up the next day and Chris and I owned the business,” said Jaswell, 27 and now co-owner of Jaswell’s Farm, which was founded in 1899 by her great-grandfather. “Our parents wanted to make sure this is what we wanted, so we had taken an active role in the business from an early age.”
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If only all family businesses could make the transition between generations so easily.
Only about one-third of family-owned businesses in the United States survive the transfer of ownership from founder to second generation, according to the Small Business Administration. Just half of those will last to see a third generation of ownership.
Several problems can arise to thwart the succession of a family business. In some cases, the business itself is no longer viable, and closing shop is the best option. More often, however, there is hesitation by the owner to pass on the business, or reluctance on the part of the prospective successor to take over.
While Allison Jaswell said the decision to take over her family’s farm was not an easy one for her and Chris, they did feel prepared once the decision was made. Prior to the change of ownership in 1999, her parents made it a point to include their kids in key business decisions, including the addition of a retail bakery and the purchase of an expensive pasteurization system.
“The decision for us to take over the business was really well-versed, because we already were a part of the business,” she said. “There really were no secrets.”
Having no secrets, it turns out, is the secret to a smooth transfer of ownership from one generation to the next. The No. 1 rule for the successful transition of a family business, according to the Small Business Administration: sharing information among all family members.
“My advice is to minimize future family strife by trying to create open communication between the older and younger generations of the business, especially for small businesses where everybody in the family is involved,” said Leon Boghossian, a partner at Hinckley, Allen & Snyder law firm in Providence.
By spotting potential conflict areas ahead of time and airing viewpoints in advance of the ownership transition, families avoid leaving themselves open to conflict and stress later on. For example, if a family member relinquishing ownership wants to keep a limited role in the business, his or her future job responsibilities should be hashed out in detail during the planning phase, SBA says. (Even so, the SBA recommends a clean break, in which the older family member is not involved in the day-to-day operations of the business).
Developing an estate plan to shield business owners from a big tax burden also is essential, experts say. The SBA encourages business owners to seek the help of a financial planner or tax attorney to set up an estate plan. While it might seem like common sense, many family-owned businesses neglect the estate-planning issue – and suffer the tax consequences later.
“The number one mistake I see people make is not doing a plan at all,” said Boghossian who helps clients with business-succession planning. He said another common pitfall occurs when a business owner fails to specify which child or children will assume primary responsibility for running the business in cases of multiple siblings. “If you don’t choose one or two kids to become the leaders of the business, it’s a disaster waiting to happen,” Boghossian said.
In addition to estate and succession planning, experts say families should mutually map out a strategic plan or vision for the business’ future.
Richard Sugerman, president of Providence Metallizing of Pawtucket, says he wishes there had been a clearer strategic plan for the business when his father – who founded the surface-finishing company – died 10 years ago. Although Sugerman already had committed to take over the business, he said he wasn’t ready to begin making broad, strategic decisions.
“I was an operations guy, but I could see that we were in some markets that were diminishing at the time,” said Sugerman, who deferred taking over the business for several years while his uncle ran things. “When I finally took over, we had some catching up to do. It had taken some time for me to step back and figure out where the business was going and where the next market was going to be.”
