Succession plans, or the lack thereof, can hinder the transition to a new generation — and affect how loved ones fund their later years.
Most workers strive to keep their personal and professional lives separate. But for people who start or inherit a family business, the opposite is true: The personal is professional. And it gets very personal when it comes to retirement.
Family businesses employ close to 60 percent of the nation’s work force, according to calculations by management professors at the University of North Carolina at Charlotte and Kennesaw State University, in collaboration with the research and advocacy group Family Enterprise USA. They found there are as many as 32 million family businesses in the country.
In a sense, running a family business is the epitome of entrepreneurial success, with passing on that business to children the apex of that success. But a 2021 survey by the consulting firm PwC found that only about a third of family-owned businesses have a succession plan. We looked at five of these businesses to see how they managed the transition between generations — and how those plans affected owners’ timelines for retirement.
An expert’s plea: Don’t wing it
When Joe Groebner took over the natural-gas equipment distribution company his father started in Minnesota in 1976, the handoff was a casual affair. But when Joe’s daughter, Carissa Skorczewski, was working her way toward the chief executive title she attained in 2021, she insisted on hiring experts who could guide them through the process.
“When we went into a discussion about business transition, my plan was just to figure it out as we went along,” said Mr. Groebner, 63. “That was not a good plan.”
While there are often both emotional and financial imperatives to transferring a family business between generations, shifting ownership of business assets and day-to-day operational control is a complex and delicate process.
“When it’s a family business, not only do we have to transition the ownership and the management, but we also have the family component,” said Holly Geerdes, founding attorney of the Estate Law Center. “We have a lot of parents who just assume and wish and pray that their children are going to come into the business, but they don’t have that conversation,” she said. “They really have to map it out and make a game plan.”
Ms. Skorczewski, 36, said that even with the assistance of advisers and consultants, the Groebners’ transition hit some bumps.
“My dad wasn’t looking to leave right away,” Ms. Skorczewski said. “Without a timeline, it got a little tricky at some points” to delineate corporate roles, she said. “You always think you have more time than you do.”
It’s common for owners to miscalculate how long a generational transition will take, according to Steve Zimmerman, co-founder of the financial planning firm Mindful Asset Planning, who advised the Groebner family.
Family businesses come in many forms: S corporations, LLCs, partnerships and other corporate structures. Although they are, almost by definition, privately held, ownership is typically defined as shares of stock in the company. Owners can give or sell shares in several ways to help a generational handover, which they might do to transfer some of the business value without handing over a commensurate amount of corporate control.
“Consultants usually talk about a 10-year transfer,” Mr. Zimmerman said. The project starts by organizing business processes, identifying successors and building a leadership path for the new generation along with an off-ramp for the departing leaders.
Jonathan Flack, U.S. family enterprises leader at PwC, said the timeline was long because succession includes two concurrent tasks. “Transferring ownership and transferring leadership are two different things,” he said.
“I knew this transition wouldn’t be quite the same,” Mr. Groebner said, “but I will say, going into it, I thought it would be less onerous than it was, and I’m really glad we put together a team that kind of walked us through it.”
When racism blocks access to credit, and growth
Perryman Building & Construction Services is one of the best-known names in construction in the Philadelphia area, with a project list that includes some of the most prominent structures in the city, including the Pennsylvania Convention Center and Lincoln Financial Field, home of the Philadelphia Eagles.
Angelo Perryman, the company president, chief executive and second-generation owner, said he grew up seeing his father, Jimmie, struggle to expand the small home-building operation he started after returning home from the Korean War.
Most builders today, even small ones, take for granted the availability of a line of credit, because materials have to be bought in advance and subcontractors have to be paid continually. “You have to do the work first, and then you get paid,” Mr. Perryman said.
But in Jim Crow-era Alabama, where the firm began, banks wouldn’t extend credit to the founding Mr. Perryman. “When my dad started the firm in 1954, it was, you build up your own cash cache to self finance. That obviously impacted how much we grow — and don’t grow,” he said.
The impact on Angelo and his two brothers was profound, Mr. Perryman said. “When I was 8 years old, I was laying bricks.” (Both brothers remain on the company’s advisory board but are not involved otherwise.)
After 15 years gaining experience in commercial construction and after the death of his father, Mr. Perryman moved the business to Philadelphia in 1998. He expanded the company significantly, but he said the effects of the discrimination his father suffered linger more than half a century later.
“As it is even now, African American-owned businesses are few,” he said. “African Americans, because they lack access to capital, are impacted deeper” and struggle to grow. “You’re always undersized,” he said, adding that smaller firms have less leverage in negotiating contract terms and guarantees.
“You may want to be really conservative but could be forced into a much more risky place,” he said.
Mr. Perryman said these experiences have influenced how he prepared his daughter, Angelina, to lead the company as a Black millennial woman in a male-dominated industry.
“Angelina is, to a large degree, running day-to-day now,” he said, adding that she has been working for the company for about 15 years already and is vice president. “It’s generally known that she will be the next leader.”
Although Mr. Perryman said he expected to hand off some of his current duties over the next few years, he dismissed a traditional retirement, saying he expected to remain involved with clients and as an adviser. “I don’t think I would see what you naturally call retirement,” he said, adding that he has a good working relationship with his daughter.
“She respects wisdom,” he said. “It’s not about who’s boss.”
The children: ‘They have their own opinions’
When Covid shut down in-person retail — the channel through which Royce New York derived the vast majority of its sales — the family-owned leather-goods company had to transform its business model virtually overnight.
“It was an opportunity for a paradigm shift,” Will Bauer said. “How our products were being distributed was pretty archaic.”
Mr. Bauer, 31, shares ownership with his mother, Kathy. His father, Harold, started the Royce brand to expand the business his grandfather established in New York after fleeing Nazi-occupied Austria. Poor health forced Harold Bauer, who died this month, to step back from running day-to-day operations a number of years ago.
The pivot wasn’t easy. Becoming an e-commerce-focused company — and absorbing that expense — during the chaotic early days of the pandemic was a hard sell, Mr. Bauer acknowledged. So was his campaign to redesign the company’s goods to better reflect millennial sensibilities.
“You almost feel like you’re the high school kid again,” he said. “It’s almost like you’re arguing with your parents.” At times, he added, voices were raised.
“One of the big things with millennials is, they want everything now,” Ms. Bauer, 63, said. “There’s nothing like maturity and life experience.”
Ms. Geerdes of the Estate Law Center said she saw this conflict frequently. “The children and the parents working together is a challenge because now your children are adults — they have their own opinions that are not necessarily consistent with the parents’,” she said.
“I think it took probably many months for us all to have some sort of agreement” about how and how much to spend on digital sales and marketing, Ms. Bauer said.
Out of that crucible, though, came not only commercial success but a clearer vision of what Royce New York will look like, and what steps mother and son are taking to reach that point.
Ms. Bauer said she was fully on board. “I have, over the past 18 months, incorporated him into every business decision and every problem,” she said.
“The best learning lesson in this business has just been seeing both the strengths and weaknesses of how my parents have managed it,” Mr. Bauer said. “The goal is eventually for me to be a sole owner,” he said. But retiring isn’t exactly in the family DNA, he added. “My grandfather effectively died at this desk.”
Ms. Bauer said she had no plans to retire. “I see myself working to the end, as most entrepreneurs want to do,” she said.
Dividing things up: What’s fair?
Many owners envision carrying on the family business, but Craig Underwood took the scenic route, getting a graduate degree and working for a competitor before returning in 1987 to the Fayetteville, Ark., jewelry store his father, William, opened three decades earlier.
“Seeing things from a nonfamily member’s perspective is incredibly beneficial,” he said.
So when the second of his three sons, Troy, expressed interest in taking over the store, Mr. Underwood insisted the young man follow the same path.
“If you come right into the family business, you’re in a bubble,” he said. “You have the same last name and employees treat and perceive you differently. It’s not a completely unbiased situation.” Troy, now 30, earned a gemology degree and worked for the same rival store before moving to Underwoods Fine Jewelers in 2021.
Experts say this is a good idea. “You have to be not only liked but respected,” said Bill Boyajian, the author of a book on family business succession planning and a consultant who works with mom-and-pop jewelry stores.
Mr. Underwood said he and his wife, Laura, who works in the business, planned to give Troy shares in it over a period of years. “I’ve been very frugal and tried to build up my own estate so I wouldn’t have to sell it to my son,” he said.
But giving away a business doesn’t necessarily make the transition easier. Experts in succession say one of the thorniest issues for parents is how to divide an estate, most or all of which may be tied up in the business, among multiple children, not all of whom might have the inclination or ability to run it.
Mr. Underwood is facing two generations’ worth of this challenge: With his two siblings, as well as his three children.
Life insurance is a frequently used tool in succession planning. Policies can balance out what an owner’s heirs will receive after their death: If one daughter inherits a $5 million business, for instance, her sister might be named the beneficiary of a $5 million life insurance policy that pays out when the parent dies.
“Insurance isn’t the end-all, be-all, but it’s a great planning tool,” said Brad Sprong, tax industry leader at the consulting firm KPMG’s private enterprise practice.
But the best-laid plans can still be upended: The founding Mr. Underwood had the business assessed, then gave stock to Craig over a period of years and took out life insurance for Craig’s two sisters so all three would receive roughly equivalent inheritances.
That was the idea, anyway. But William Underwood’s robust longevity — at age 90, he no longer runs the store but still visits a few times a week, his son said — could complicate the plan. The policy terminates when he turns 95, meaning that if the elder Mr. Underwood lives longer than that, there could be little for Craig Underwood’s two sisters to inherit.
“I’m a little bit soured on insurance for that reason,” Craig Underwood said, adding that the situation has left him at a crossroads in his own estate planning with regard to Troy’s two brothers, neither of whom is involved in the business.
“I know frustrations can exist with a family business going to one individual,” Craig Underwood said, but he acknowledged that putting a price on his commitment to the store — getting a degree at his father’s insistence, working weekends and holidays — could create tension. “From my perspective, I’ve dedicated my life and my career to this,” he said.
While calculating the value of a family business requires sophisticated accounting, quantifying the time and emotional resources invested can be a much bigger challenge, Mr. Boyajian said. “Fair isn’t always equal, and equal isn’t always fair.”
Buyouts: ‘The biggest key is patience’
In 2005, Chad Weaver went to work at the Pittsburgh-area home-building business his parents had started three decades earlier, expecting to fully inherit the operation by 2015.
It hasn’t quite worked out like that.
“It was a 10-year plan that turned into a 20-year plan,” Mr. Weaver, 49, said. Now, he is two years into a five-year schedule of buying out his parents, and his parents still hold a majority of voting shares. “I bite my tongue a lot. I’m respectful of the fact that for the second generation, the biggest key is patience.”
This buyout plan is a common method for transferring the assets of a business from parent to child, providing a stream of retirement income for the parents and giving them a gradual off-ramp. Many times, the founding parent remains involved as an adviser or consultant.
This, succession advisers say, is appealing to business owners whose adult lives have been more or less defined by their business. “It’s not really a job, it’s an identity,” said Josh Baron, partner at BanyanGlobal, a business succession consulting firm. “It’s very unlikely you’re going to just walk out the door and start playing golf or pickleball.”
There are also financial ties. Mr. Baron said he saw some company founders sink everything they had into their ventures, setting aside little or nothing for retirement.
“The business is usually their most valuable asset,” he said.
John Campbell, a senior vice president at U.S. Bank Private Wealth Management, said owners tended to trust their own business acumen, sometimes at the expense of diversification. “It could lead to concentration of risk if you have all your eggs in the family business,” he said.
This raises the stakes for the next generation to keep the business thriving — but experts say a reluctance to cede control can actually inhibit growth if their children don’t get the opportunity to practice decision-making or cultivate their own leadership style.
While the younger Mr. Weaver has expanded Weaver Homes to 30 employees from four, he said his parents struggled in its early years. “The bulk of their income comes from the projects and the profit,” he said. Even after the buyout is complete, he said, his parents will retain the option of an investment stake.
Mr. Weaver’s father, Bill, retains the chairman and chief executive titles but is no longer involved day to day. The younger Mr. Weaver is the president, and his mother, Bonnie, remains vice president and handles home buyer closings. “She wants to keep working, she wants to stay active,” Mr. Weaver said. Besides, he added, “I’m not going to fire my mother.”