Passing torch creates family business stress

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David Perkins (left) has taken the reins as company president from father Tom at Perkins Motor Co., keeping the 72-year-old business in the same family for the fourth generation.

David Perkins (left) has taken the reins as company president from father Tom at Perkins Motor Co., keeping the 72-year-old business in the same family for the fourth generation.

David Perkins walked into his dad’s roomy office and sat in a chair facing his desk.

They were both wearing black shirts with a Perkins Motor Co. logo.

“We’ve got lots of colors, but somehow we always end up wearing the same one,” said company owner Tom Perkins. They both shrugged and smiled.

Their relationship is complicated. They are father and son. They also work together running a multi-million-dollar auto dealership.

And now they are in transition.

This year David, 29, became president of the family-owned company. Tom, who had been president since 1985, became chairman and plans to be less hands-on in the day-to-day operations. They are preparing for the fourth Perkins generation to take over the family business.

Nothing about it is easy.

“I have seen some guys in their 40s and their dads are still in the store and didn’t want to let go,” said Tom, 58. “And I’ve seen guys skilled at running a department, but not at running a dealership.

“My take is there has to be a better way.”

Families are tangled, complicated units. Businesses are, too. Mix them together and complicated just turned deeply personal, says Janna Hoiberg, who consults small companies through her business, ActionCOACH.

“The big issue that you have is all the dynamics of working with your parents,” Hoiberg said. “There is a reason why children, for the most part, move out at age 18.”

Sometimes parents and children don’t know where family ends and business begins. The parents talk to the children as though they are 14 or the children slack off at work knowing their parents will cover for them.

“You can be 45 and that dynamic doesn’t change,” said Hoiberg, who has made transitions the subject of her forthcoming book, “Running a Successful Family Business Without Destroying the Relationships.”

Sometimes kids don’t want the family business. Sometimes they are ill-equipped to run it. And sometimes they end up fighting with other siblings or relatives over who owns it. These troubles often lead to selling the business or a complete closure.

Forty-three percent of family-owned businesses will transition from the first generation to the second generation; 30 percent will survive the second generation; 15 percent will successfully pass to the third generation; and only 3 percent will make it to the fourth generation, according to the Institute for Family-Owned Business.

Transition happens

Tom’s grandfather, George Perkins, opened Perkins Motor Company in 1941 in Colorado Springs. He had been a mechanic in Ridgway, Colo., a railroad and mining town. He had been repairing cars and decided he could sell them too. He opened a DeSoto-Plymouth dealership and sold five cars the first year.

George’s son, Will Perkins, had gone to Colorado College and graduated in 1950. He played baseball for a while and then went into business with his dad. Then, in 1958, George died.

“My dad was 33 and suddenly he was president,” Tom said. “On the issue of business transition — there was no plan at all for him.”

Death is not how Tom wants to pass the business to his son.

A few years ago, before the recession, Tom considered the idea that one day he might sell the business outside of the family. He had taken over as president in 1985 at age 31. But his father, now 85, didn’t officially retire until 2000.

Even after Chrysler filed for bankruptcy in 2009, Tom was building up the business, getting more franchises and building the individual shops within the business — body shop, used car sales, new car sales, service, and wholesale parts and leasing — with eventual sale in mind. Then, David expressed interest.

But Tom couldn’t give the business to his son — he’d be taken down by taxes, Tom said. Selling it is an option, but David is 29 and doesn’t have the cash to buy it.

One option is for Tom to keep the real estate and sell David the inventory and charge David rent.

But first, David had to learn the business, Tom said.

David has spent more time learning how to run a dealership instead of learning the ins and outs of each department. He spent a year shadowing his father, then went to the National Automobile Dealers Association’s school for general managers.

He’s got his own ideas about how to run the business.

“That was part of the draw,” David said. “I wouldn’t be a department manager. The goal would be running the store.”

Making a plan

The trouble in family business transition is lack of planning and communication, said Ron Chernak, president of First Business Brokers, which specializes in business sale transactions. Clients come in thinking they will give their business to their child and it’s going to be easy. But they have not thought about issues such as what percent goes to each child? What is the valuation of the business?

Parents can take out an insurance policy for their retirement against the possibility that their child no longer can run the business. They should negotiate a structure for the sale and set goals that match the family’s values. And parents should consider how employees will feel about taking orders from junior.

All of those things, Chernak said, can affect value, profitability and morale.

“We start asking questions and then we hear, ‘Whoa, maybe we should take a step back and convene a family meeting,’” Chernak said.

Chernak said families ought to spend no less than a year planning a family business transition. A big challenge is that parents don’t want to talk about wills and estate plans.

“We caution people to be very deliberate and talk it through,” Chernak said. “The most successful transitions are the ones thought out and choreographed.”

Families, especially those running businesses with assets and revenue more than $1 million, could consider a Family Limited Partnership, said Kevin Sullivan, a certified financial planner and owner of Sullivan and Associates. FLPs allow for more favorable tax treatment in the transfer of wealth and allow the ownership to transfer slowly to the child.

“There are certainly a lot of hoops in transition from one generation to the next,” Sullivan said. “For those business owners that don’t have an estate plan, they need to ask themselves, what do you want to happen?”

He is a second-generation owner of Sullivan and Associates. His father Patrick started the business in 1980 and he joined the business in 1999. Now he owns it.

“We started planning early,” he said. “The worst thing you can do is force a child into the family business.”

Tom Perkins says the Perkins family legacy goes beyond cars. He gives back to the community through sponsorships and community organizations. It’s important to him that his son carries on that mission, he said.

Tom and David have spent a lot of time talking about the business — not just the numbers, Tom said, but the reasons why the family started and kept the business and how they grew it, the missteps and successes.

“You have to be intentional in the situation where it can be passed on,” Tom said.

“The point is to plan to where it can happen.”

Tom still owns the buildings and will provide the general direction of the business. He has to let David run the show.

“It’s hard for me to stand there and not say something,” Tom said. “But he’s the president now.”

One Response to Passing torch creates family business stress

  1. Are they still as homophobic as Will was? I bet so. Nobody should do business with an organization like that.

    COS Citizen
    April 11, 2013 at 6:50 pm