10 best moves for growing a family business: by following the advice of B.E.'s experts, your company can be profitable for generations to come.

MOST OF US ASSUME THAT FAMILY business issues apply only to mom-and-pop operations. But consider Maxima Corp., the $45 million data processing and computer services company.

Last December, founder Joshua I. Smith Sr. sued his son, Joshua I. Smith II, and two other Maxima employees for the unauthorized diversion of $675,000 from the parent company to a new division. (See "The Big Mess At Maxima," Newspoints, May 1994.) The younger Smith, insisting that his father approved the new venture and the transaction, filed a countersuit against him. The squabble comes at a time when the company can little afford the strain. Revenues have been declining since 1988, and the BLACK ENTERPRISE 100s firm hasn't turned a profit in four years.

And consider Daniels & Bell Inc., the first black-owned Wall Street securities firm. In 1988, founder Travers H.J. Bell Jr. had a heart attack and died before the successor he'd chosen, his son Darryl Bell, was experienced enough to handle the responsibility. Darryl, who played Ron Johnson in the TV series A Different World, had no business training and little interest in running his dad's company. He took charge of it anyway and, through a series of bad decisions, lost several major accounts and valued employees.

Sad-but-true stories like these are not limited to large companies. Small businesses make up the bulk of the nation's family-owned firms. Conflict between family values and business needs is part and parcel of a growing company's often painful maturation.

The average age of the BE 100s companies is now 21 years. As the first generation of black entrepreneurs matures, their adult children are coming to work for them or moving into more responsible positions in the family business. Some tensions are inevitable.

It's estimated that 90% of all U.S. firms, including 46% of the BE INDUSTRIAL/SERVICE 100 companies, are owned or managed by families. But only one in three family firms survives two generations, and only one in six survives three generations.

That's sobering news in light of the fact that by the year 2010, family business owners, ready to retire and pass the baton, will transfer an estimated $8 trillion of wealth to the next generation.

"This is the first time African Americans will be transferring major assets," says Nathan L. Eddrington, a partner in Eddrington, Roman Capital Management, a consulting firm in Roswell, Ga. "We won't achieve economic parity if we lose our companies during that transfer."

To find out what family businesses can do to ensure that they keep going--and growing--BE interviewed some of the nation's top family business experts. They all concede that addressing family business issues can be difficult, but insist it's worth the effort if your goal is strength and longevity for your business. The consultants also stress that there are no pat answers; specific strategies and solutions will depend on your particular situation. The 10 recommendations that follow are designed to help you get started.

1. Establish clear criteria for joining the family business.

In its broadest sense, a family business is one in which the founder's family members own stock or are actively involved in the day-to-day operations of the company According to a recent study of family firms, conducted by Massachusetts Mutual Life Insurance Co., spouses and sons are the relatives most likely to join a founder in the family business. But experts say that sharing your last name with people isn't the best reason for inviting them into your business.

"Family members should have something to offer when they come into the business," says Dr. Leslie Dashew, president of Human Side of Enterprise, an Atlanta-based management consulting firm. Qualifications, including education, skills and related work experience, should be weighed more heavily than family ties, she says. That may mean throwing out old stereotypes about roles and relationships. You must recognize when a daughter might be more qualified than a son, a younger child more adept than an older child, or a brother-in-law a better choice than a brother.

If you expect family members to work in the family business as a prerequisite to inheriting ownership in it, make that clear up front, the experts say. Also, make clear to those family members who own stock but who do not work in the family business how much (or how little) that ownership entitles them to take part in the affairs of the company. And what if no one in the family wants to join your business? Consultants advise that you respect those wishes. But first, be sure your assumptions are correct.

Patricia Frishkoff, director of the Family Business Program at Oregon State University, says that children of business owners sometimes don't express an interest in working in the company because they're waiting for mom or dad to extend a formal invitation. "It may be a good idea to set an age by which kids have to say what their intentions are," Frishkoff says. "Certainly by the end of high school, kids should know what's expected of them in terms of education, outside experience and a time frame if they want to join the family business."

2. Define the roles and responsibilities of family members who work in the business.

As soon as family members agree to come into the business, the next step is to write job descriptions that clearly define their roles and responsibilities. Exactly what work is expected of them? To whom will they report? How will they be evaluated and promoted? Also, be sure to pay family members fairly. Some experts suggest that you base salaries and benefits on what a person would earn in a comparable position at a comparable company. Others suggest that you tie compensation to a person's value to the company. For example, at a catering company the expertise of a baker might be worth more than that of an executive secretary, although the reverse might be true in the larger marketplace.

Adding family members, or involving them in different areas of the business, can create unexpected changes. For example, your nephew's aggressive marketing plan might help increase sales, but it will also require a larger budget. Founders should be prepared for both the positive and negative impacts of new blood in the organization. "The next generation should help move the business to the next level," says James I. Herbert, director of the Urban Enterprise Initiative of the Family Enterprise Center at Kennesaw State College in Marietta, Ga. "But to achieve that there must be crystal clear communication from the founder down and [from] the family up."

3. Define the roles and responsibilities for non-family members who work in the business.

Most family-owned firms also hire non-family workers. In fact, attracting and retaining qualified non-family employees is a key concern for many family companies. How do you make non-family workers feel valued and reduce the perception of nepotism? The answer, say the experts, is to treat them fairly. They hasten to add, however, that fair is not always equal. For example, founders usually want to reserve certain executive-level positions in the company for family members only. "That's part of the reality of working for a family business," says Herbert. "People recognize the unique characteristics of family business and can work with that."

The key, he says, is to give non-family members a clear picture of the limits of their career paths in the company, clear job descriptions, objective performance appraisals and fair compensation. And remember: Non-family workers often can be more important than family members to the success of the company, especially during the start-up years when prospective family managers and successors are still too young to contribute. Consider rewarding your loyal, non-family employees with cash bonuses and/or company stock.

4. Separate family and business issues.

Many problems in family-owned businesses stem from the fact that families and businesses are separate systems that have different, often competing, needs and goals. Whereas the primary function of a family is to nurture relationships and raise children, the primary function of a business is to increase production and generate profits. "The overlap of these systems creates confusion," says Dashew. "The goal should be to separate these systems as much as possible."

Business owners should anticipate family problems, such as divorce, sibling rivalries and other family feuds, as well as personal problems, such as substance abuse and unexpected illnesses, and decide beforehand how they will be handled. Specific strategies, which might include a prenuptial agreement or a special, nonbusiness fund set aside for family emergencies, will depend on the individuals involved. But, says Dashew, "The family businesses that tend to survive are the ones that put the business first."

5. Transfer the founder's vision to others in the company.

If a founder sincerely wants his business to be a family business, he must learn to share with others his goals and dreams for the company. "The founder has an awesome responsibility to convey that vision--that someday this too will be yours," says Herbert. "The best way to do that is the old-fashioned way, by taking your children to work with you and giving them responsibilities in the business."

By requiring that their daughters work several hours each week at the family business, John Bolling III and his wife, Audrey, owners of A.L.L. International Clothing Co. Inc. in Dallas, are transferring both family and business values to their offspring. LeeSean, 14, generates invoices and handles correspondence. Lauren, 11, tags along with dad on sales calls and trips to the bank. The girls each own 12.5% of the company, and have the stock certificates to prove it. "They know what's going on in the business because they're directly involved in it," says John. "We're preparing this business to be theirs someday, if they want it."

Leslie J. Epps, owner of L.J. Epps & Associates, a family business consulting firm in Columbus, Ohio, says communicating the vision for the family business should be a two-way street. Founders should listen to what other family members want--and don't want. Says Epps, "If family members are actively involved in the business, and/or are expected to receive ownership rights to the business in the future, they should have an opportunity to express their points of view."

6. Draft a buy-sell agreement to protect ownership of the family business.

Part of the vision of most company founders is to keep the business in the family. A buy-sell agreement, which spells out the terms under which those who won stock in a company may transfer it to someone else, is one tool you can use to ensure ownership stays right where you want.

Cynthia Reed, president and 25% owner of Branches Medical Inc., a Lauderhill, Fla.-based medical products distribution company, hammered out a buy-sell agreement with her brothers, Hamish, who owns 50% of the company,pany, and Arjester, who owns 25%. The three decided that if anyone wants out of the business, their shares must go back to the remaining owners. "We all get along fine," says Cynthia, "but any time there's a question, there's the potential for confu sion. Our buy-sell agreement is designed to help eliminate any confusion or disagreements."

To work as intended, buy-sell agreements must specify a way to determine the value of your company's stock, and a way to pay for the shares. Consultants say one Option to fund buy-sell agreements is life insurance, which can be purchased by the corporation, or each owner can take out a policy on the others.

7. Choose and train a successor.

Deciding who will eventually take over management of your company is the first part of a two-part process called succession planning. Consultants say it's one of the most difficult issues you will face. "The problem is you're talking to me about being gone," explains Eddrington. In addition to your own mortality, you may worry about relinquishing control of one "baby" (your business) to another "baby" (your child or children). Effective succession planning should anticipate these concerns and include opportunities for the founder to train and mentor the successor, and for the successor to assume significant responsibilities in the business.

Cyril Miller, president of Seattle Super Smoke Ltd., a company that smokes meats and poultry for restaurants, hotels and retail establishments, recently began talking with his three sons about a succession plan. Dwayne, 34, currently in law school, says he has no interest in working in the family business. Maurice, 33, who joined the firm 18 months ago after an eight-year career in the military, serves as the company's production manager. Elston, 30, who heads Super Smoke's retail operations, has worked in the business for five years.

The elder Miller says the fact that his youngest son has shown the most interest in working in and learning about the business makes it easier to pick a successor. "As it stands right now, Elston will run the company if something happens to me," says Miller, who schedules time every Saturday morning to talk shop with his son. "It's really not a difficult decision. You have to take a look at each individual's strengths and weaknesses."

In addition to worrying about how their businesses will survive without them, founders worry about how they will survive without their businesses, says Eddrington. One of his clients, the owner of a computer cable manufacturing firm, refused to relinquish control of the company to his son until they worked out an agreement to pay the father as a salaried consultant. "Ninety percent of the time, fear of giving up control and fear of losing their standard of living is the holdup in succession," says Eddrington. "Succession plans should include provisions to protect the financial interests of founders and their spouses."

8. Develop a comprehensive estate plan.

The second part of succession planning involves estate planning, a process that puts in place the mechanisms to transfer ownership of your company to others. Depending on your objectives for your family and for your business, those mechanisms might include trusts, gifts of stock, buy-sell agreements, life insurance policies or a will. "Estate planning is a process that changes as you change," says Shirley McCrary-Simmons, a senior associate at Arrington & Hollowell, an Atlanta law firm. "The key is to mold the plan to the person. The earlier you start planning, the better off you will be."

For most business owners, 80% or more of their assets are tied up in the business. A big decision, then, becomes how to pass on those assets--especially if all your heirs are not working in the business. To avoid potential conflicts, consultants suggest that you pass on the business assets only to those family members who work in the business, and leave other assets of comparable value, such as real estate holdings and life insurance proceeds, to family members who aren't in the business

Another key concern of estate planning is making adequate provisions to pay: estate taxes which can claim up to 60% of the value of your assets; and administrative costs associated with settling your estate, which can gobble up another 20%. Proper estate planning also can help ensure that enough money is available family members who still must depend on the business for income if you die or become disabled.

"Once business owners understand the impact of estate taxes, they become less reluctant to take time out to work on estate planning," says Eddrington. "Wealth is not lost, it's transferred. The question is, who do you want to transfer it to--your family, or Uncle Sam?"

9. Seek help from qualified outsiders.

Most family businesses keep family and family business matters private. Company founders rarely ask for help from the outsiders, other than their accountants. Ironically, many family businesses end up having their "dirty laundry" aired in public precisely because they wait until it s too late to seek advice

A non-family board of directors, chosen for their business expertise an ability to remain objective, can help a family business sort through certain problems. Family business consultants, who are trained to consider both family and business issues, are another good resource. Their job is to coordinate the efforts of a team of expertS that may include your attorney, investment adviser, insurance agent, financial planner and even your banker .

"Very often a banker is the first person to bring up the question of succession planning to the family business owner," says Brenda Jones, vice president and relationship manager at First Interstate Bank in Seattle. "Most family businesses get to the expansion phase before the founder reaches his twilight years when he starts thinking about succession.

In considering whether to approve loans for an expanding firm, bankers look for signs that indicate the company can survive and thrive--with or without the founder. "Most businesses are only valuable as going concerns," explains Jones. "Banks don't want to be in a position liquidate your assets. They want you repay your loans."

10. Celebrate the bond that family businesses can create.

The many challenges notwithstanding family businesses can be rewarding for everyone involved. "when it works--and it works a lot more often than we see is so magnificent," says Frishkoff "Family businesses can create a bond that is so ideal in terms of sharing a vision and having fun together because there is a required closeness, a choosing to stay close together."

For African-American family firms, which face added burdens created by racism that closeness can be particularly important.

"You never get away from being African-American in this society; racism is an insidious piece of Americana that's there for us," says Herbert. But the entrepreneur, and the entrepreneurial family, the type that will thrive off that energy as opposed to succumbing to it."

RESOURCES FOR FAMILY-OWNED COMPANIES

Family business consulting is a relatively new field, but an increasing number of management consultants are gearing their practices to deal with family business issues Check your local telephone directory or ask your attorney, accountant and other business advisers for referrals.

Many colleges and universities now offer special forums and/or workshops for family businesses. Massachusetts Mutual Life Insurance Co. sponsors 20 Centers for Family Business across the country. For the location of the tenter nearest you, call 800-494-5433.

Business Owner Resources publishes The family Business Advisor, a monthly newsletter ($139 per year), and the family business leadership series, six helpful booklets on such topics as succession planning, family dynamics and compensation ($14.95 each) To order, call 800-551-0633.