By Kim Lyons
Pittsburgh Post-Gazette.
PITTSBURGH
The Mascilli family, which owns a plumbing business in suburban Pittsburgh, started several years ago to transition day-to-day operations from the parents to their grown children. And sons Anthony and Arthur Jr. are keenly aware of how much of the succession of a family business depends on the second generation.
Arthur Mascilli started the company in 1957 with $4,000 from a cashed-in life insurance policy, and worked hard to build it into a company that now sees between $3 million and $4 million in annual revenue.
“We want them involved in the business,” Anthony Mascilli said of his parents. “They don’t hold us back, let us do our thing, and we’ve never felt compelled to change the ownership.”
To that end, the older Mascillis created a trust, so that when either one of them dies or becomes ill, their sons will assume control of the business. “That helps us avoid having to think about a lot of the issues that are hard to talk about, because we know the trust covers them,” Anthony Mascilli said.
But for many family-owned businesses, handing off the baton to the next generation can lead to challenges beyond operations and payroll, said Sam Goncz, an attorney who represents clients in estate planning matters. He specializes in business succession.
Some bruised egos may be inevitable, as specifics about who will control what, and when, are worked out. It’s understandable that a business owner who has built a company from scratch would take the transfer of authority very personally, he said.
“Most business owners eventually realize that what’s in the best interest for the family is that the business is not paralyzed by fear of hurting someone’s feelings,” Goncz said.
Just starting the process of a succession plan can feel daunting for small business owners, he added. “It’s difficult to begin the process because you focus so much energy on sales and profits and building a customer base, and that’s your sole focus for so long.
“Thinking about who will succeed you in business comes pretty far down the list of priorities.”
The first thing for the owner to think about, Goncz said, is who will control the business, if not you. “When you start thinking about that, it makes it easier to take steps in that direction,” he said.
Ideally, the owner has at least one trusted adviser to begin the conversation with, someone who isn’t a successor or family member. “It should probably start with your lawyer,” Goncz said.
While involving an outside professional in the discussion is important, don’t count on a reduction in family squabbles, he cautioned.
“It’s a very hard challenge,” he said.
And, if a business is going to stay in the family but not all the children are going to be involved in running the business, that presents yet another issue to be addressed. Will those who don’t work in the business have any say in how it is handled, or will there be a financial provision for them?
John Chips has been working with his father, Tim Chips, at their dental practice since 2008.
“I did my residency on weekends, and slowly my role has grown,” he said. “My dad is 63 this year, so we’re working toward a point where he can cut back and for me to work more. A little more golf, a little less teeth.”
For the Chips family, the transition plan was dictated by the fact that dentistry isn’t exactly a profession one can step into; there’s a lot of education involved. None of the younger Dr. Chips’ brothers is a dentist, so he was the logical choice to take the reins.
Goncz said while most first-generation business owners want to see their company live on after they retire, sometimes it makes more sense to sell the business or close it. “But you have to start the conversation early.”
For Anthony and Art Mascilli Jr., their future roles are secure, but soon they’ll have to consider how and when they’ll hand the business down to their children.
By getting the conversation started, everyone has the same expectations, and there are no surprises. It’s a lot like planning a will, Goncz said; better to have the tough conversation than to leave decisions unresolved.
“The baby boomers’ retiring is the greatest transfer of wealth from one generation to the next we’ve ever seen, so that alone increases the stakes,” Goncz said. “Proper estate planning and proper business succession is going to be a big part of the economy for years to come.”
