Anyone who has ever worked for or owned a family business knows the family enterprise is a unique environment. The magical ingredients that create and sustain success are often tied to deep family traditions. The magic might be tied to a strong work ethic or a shared family talent or expertise. However, mixed in with these deep-rooted family values exist quirks that must be addressed, especially when a transferal of leadership is being discussed.
“Transition planning is very personal process for a family business,“ notes Kevin Hansen, CPA, co-managing director with Hunter Group CPA LLC. “In an optimal scenario, parental owners are patient and trusting, while their children are both interested and talented enough to absorb the required skills. In reality, this is almost never exactly how it happens.”
“Life is unpredictable and people are complex,” notes fellow co-managing director Frank Pawlowski, CPA. “So many business owners fail to open up to their families and their business advisors about their desires for the business and their retirement.”
As a result, life events—often triggered by a health issue or the death of a key family member—make options for business transition far more limited and often unpopular. The family business ends up in peril while family relationships may quickly be damaged or destroyed,” Frank observes.
To help their many family business clients to be successful, Hunter Group invests significant time advising and fostering open lines of communications between the generations.
“Often our conversations regarding the next generation are usually very subtle,” notes Kevin. “Typically, when we start talking about retirement funding strategies, it leads to deeper discussions about what roles children or other family members, or even non-family employees will play in the owner’s long-term plans.”
Hunter Group CPA LLC and its affiliate companies, including Hunter Financial Services and Hunter Professional Resources, have been assisting owners of closely-held businesses for over sixty years. The firm provides everything from tax planning and preparation to accounting and bookkeeping services, financial statement reviews and audits. In addition, Hunter Financial Services, Inc. assists clients with wealth management, life insurance and retirement planning services. The firm’s professional recruiting arm helps clients locate qualified in-house financial talent, from temporary bookkeeping and accounting staff to controller and CFO-level talent.
However, Hunter Group’s owners are most proud of their role as trusted advisor and consultant on all matters related to the financial success of both the business and the family.
Kevin and Frank, together with their six partners who form the ownership team operating the practice, have seen many family businesses come and go over the last sixty years. When the late Robert Hunter formed the company in Paramus back in 1956, he recognized that family businesses were the backbone of New Jersey’s business landscape.
However, unlike today, mid-twentieth century families expected someone from the next generation will eventually run the family enterprise. Today, while family-owned and managed businesses still make up 90 percent of American business and approximately 50 percent of the nation’s Gross National Product, the statistics for a successful transition of a family business are not very promising.
According to Forbes, only fifty percent of first generation businesses successfully transition to the second generation. Worse, only half of the second generation will successfully transfer to the third. According to the Family Business Institute, only three percent of family businesses survive to the fourth generation.
In spite of the statistics, the world of the family business is far from doom and gloom. In fact, there are many success stories.
Avanti Linens: a family success story
Here in Northern New Jersey, long-time Hunter client and family business Avanti Linens is an example of successful entrepreneurship driven by strong family values.
Headquartered in a 200,000 square foot facility in Moonachie, Avanti supplies high quality embellished and bordered towels to nearly 80 percent of the nation’s major department stores as well as specialty stores and bath shops. Formed in 1969 by Arthur and Sandy Tauber, the company began when Arthur, a freshly unemployed but talented salesman and idea man, brazenly sold a roughly-drawn design concept to a Lord & Taylor buyer who took a chance on the young entrepreneur.
Operated today by Arthur and son Michael Tauber, the company is flourishing, having survived the challenges of a few high profile retail customer failures, several recessions and Superstorm Sandy.
“Superstorm Sandy kicked us very hard,” recalls Arthur. “We had ruined inventory, precision machines destroyed by dirty flood waters and employees without a place to work.”
In spite of the millions of dollars in flood water damage and months of complete business interruption, the family dug deep into their own reserves to rebuild the facility. Fortunately, the company has rebounded stronger than ever, even expanding their warehouse into available adjacent space. Grateful employees thanked the family with an embroidered towel stitched with everyone’s signature, a keepsake that is proudly framed in the facility’s lobby.
The Tauber family has relied on Hunter Group director (and partner) Elliott Koplitz, CPA for more than a decade. And, while Elliott today is a trusted member of the business team, he had to earn his stripes with Arthur. “I think I challenged him early on to earn his keep,” Arthur laughs, “But he stuck to his guns too and in a short time we have grown to trust and appreciate his team’s work. Elliott continues to prove his value to our company and our family.”
Mr. Koplitz is almost as proud of the business’ continued success as is the family.
“Avanti Linen’s success is due to the solid decision making abilities of the owners,” Elliott Koplitz notes. “The Tauber family understood long ago the importance of bringing the next generation into the fold. With Michael on board, they have taken the critical planning steps required to ensure their future success.”
Planning…and much more
According to The Small Business Administration, proper succession planning consists of five critical steps:
- Choosing a successor
- Developing a formal training plan
- Establishing a timetable
- Preparing yourself for retirement
- Installing your successor
While the SBA’s plan sounds reasonable, the devil is in the details. According to Hunter Group’s Frank Pawlowski, when it comes to succession, CEO’s are mindful of a far greater range of issues than just selecting and training the next person to lead.
“It takes months, even years of discussions to arrive at a smart succession plan,” notes Frank. “We look at the family’s retirement and estate needs. Are college plans being funded? Can lifestyles be maintained? Do certain family members have leadership potential and, if so, how best can the family utilize that sibling’s potential? Do we have key employees that might be critical to the success of the next generation? How do we lock them in so they don’t want to leave? We also look at buy-sell agreements, insurance to fund the execution of those agreements, and establishing 401(k) or deferred compensation plans or other retirement plans for the family and employees.”
“Above all else,” Frank adds, “Owners need to honestly determine if their business can support their goals? Is their industry in decline? Have we maximized the value of the business, or is there further growth potential? All of these questions are part of a long term process owners and families must contemplate,” Frank says.
Keeping things cool on the road
Not far down the road from Avanti Linens, another Hunter Group client is proving that brothers can successfully work together to build a thriving family business. Operated by brothers Don and Rick Ebenstein, Thermo King East, Inc., is a flourishing transportation refrigeration installation and service business in its second generation of ownership.
New trucks don’t typically come equipped with factory installed refrigeration systems as an option. As a result, it is not uncommon for these specialized service trucks to have aftermarket systems installed. That is where Thermo King East takes over.
Started by their father over 40 years ago, Thermo King East is a Carlstadt-based sales, installation and servicing center for aftermarket refrigeration equipment utilized by commercial vehicles.
Running a family business is simply in their blood. Their late father, Gus Ebenstein, brought the brothers into the business as young adults. When he retired in the late 1990’s, they were more than prepared. Today, the brothers have built one of the leading commercial vehicle refrigeration service centers in the East. Their clients include major truck dealerships, large and small retail and logistics operations, and even governmental entities like the MTA.
“There is no room for error in our business,” notes Thermo King East’s President Don Ebenstein. “Our clients expect refrigeration units to work without thinking about it. For that reason, quality is a top priority that drives our business. In return, we are pretty demanding when it comes to the people we hire and the outside services we buy.”
“We’ve had Hunter Group as our accountants for many, many years,” Don Ebenstein adds. “Frank and his team take the time to know our business and are there when we need them. Whether it’s a financing issue or retirement funding question or just a tax planning matter, I know Frank will give me a straight answer. These days, that’s saying a lot,” Don concludes.
Local roots & national connections
Today, many New Jersey businesses have national and international business interests, or are themselves affiliates of foreign companies. To be able service the needs of clients with multistate or multinational operations, Hunter Group is a founding member of CPAmerica International. CPAmerica is a national association of midsized independent CPA firms that share best practices and professional expertise. The relationship ensures Hunter Group has access to staff or technical expertise when needs exceed their in-house capabilities.
With all the mega mergers in the CPA industry in the last decade, Hunter Group has remained fiercely independent. Co-managing Directors Kevin Hansen and Frank Pawlowski say the owners prefer their culture of personal client interaction.
“Closely-held businesses prefer a strong relationship with an experienced CPA team that knows their business. They want to pick up the phone and get answers from someone they trust. Sometimes, we need extra hands or specialized expertise. Thanks to our CPAmerica International relationship, we have resources like a big regional firm without the typical overhead.”
“We will do whatever it takes to keep our clients happy and successful,” Kevin concludes.
The firm recently won national recognition for client service quality. Independent research firm Inavero surveyed CPA firm clients across the country and awarded Hunter Group the Best of Accounting Award for service excellence, based on the feedback from their own clients and judged against scores from other firms across the nation.