Keeping it in the family.

Operating a family-owned company takes more than just rounding up mom, dad and the kids. Here are tips to keep your family firm fit.

When he was five years old, Terrance Z. Jackson started working in his family's public relations firm, Circulation Experti Ltd., in Hartsdale, New York. While other children his age were playing games and sucking lollipops, Jackson was licking stamps and sealing envelopes.

Today, Jackson, 30, serves as vice president of company operations. He's not alone. His big sister, Tenley-Ann Hawkins, 40, is vice president and head of public relations, and brother, Garrison, 36, is executive vice president.

Launched in 1968, Circulation Experti Ltd. is the nation's oldest and largest minority-owned public relations agency, with several Fortune 500 clients, including Chase Manhattan Bank, Unilever Home & Personal Care U.S.A. and Kraft Foods, and billings in excess of $10 million.

The firm's 70-year-old founder, Warren Jackson, and his wife Tena, have no problem leaving the day-to-day operations of the company to their sons and daughter when they retire. But Mr. Jackson, who serves as chairman and CEO, never pressured his children to join the business.

"My father hoped, but never pressed us to come into the business," says Terrance of the firm his father started after years in the circulation department of the New York Times and as a media consultant on minority. reporting and coverage. "Each of us had a different expertise that we could bring to the company, and that was the lure."

Roughly 95% of all U.S. companies are family-owned -- the founder's relatives own stock or are actively involved in the day-to-day operations. But only about 30% are like Circulation Experti in that the owners have succession plans. Moreover, few survive beyond the first generation: only 33% survive into the second generation, 10% into the third generation and a paltry 3% into the fourth.

Sibling rivalry and financial difficulties are the primary reasons these businesses fail. Others falter because there are no qualified relatives who are up to the task of assuming ownership.

Take the case of Daniels & Bell Inc., the first black-owned Wall Street securities firm. After founder Travers H.J. Bell Jr. died of a heart attack in 1988, his son Darryl inherited the firm. Short on business experience, he took the company through a series of bad decisions and lavish pending sprees. The result was an exodus of both clients and company assets. In 1993, Daniels & Bell became insolvent, marking the end of a family legacy.

Operating a family-owned firm is not easy. White there are everyday issues facing the average business venture, such as financing, advertising and customer service, other concerns are unique to family enterprises. For instance, if there are already several siblings in the business, who will take on the key leadership role once a parent retires or dies? Or who should be the successor if the next of kin has neither the experience nor interest in running the company? What if an unrelated employee knows the business inside out and wants to lead the firm?

"Addressing these issues can be difficult because there is a whole set of rules when you're dealing with a family business," says Tom Plaut, a tax services partner at Deloitte & Touche in Cincinnati.

There's no "cookbook approach" to operating a family business. However, there are certain guidelines, which are as follows: establish a dear company vision and goals; set criteria for employing family members; and devise succession and estate plans.

ALL THOSE IN FAVOR: ESTABLISHING YOUR MISSION AND GOALS

For starters, create a strategic plan that outlines your business goals. The challenge is to get a consensus on your mission. But before you can get everyone on the same page, you must clearly articulate your goals. Whether there are several family members or just one child involved in the business, consider all family members' opinions and ideas when discussing goals.

Shane Brady, 34, recalls butting heads with his father, Noel Patric Brady, about how to run their real estate investment and development firm. The Bradys own Tribec Developers Inc., a Montreal, Quebec-based firm specializing in land banking, land and real estate development and the acquisition of revenue-producing buildings.

"My view and his view of the real estate world are very different. Historically, my father's mentality has been to acquire land on his own, without having to rely on anyone else," explains the younger Brady, who's vice president and partner. "So, when I recently suggested that we use institutional capital to develop a real estate opportunity fund to acquire properties, he wasn't too keen about the idea."

After several discussions about the changing real estate environment, the senior Brady finally took to the idea. Now the father-and-son team are in the process of creating Moonstone Capital Group, perhaps one of the first African American-owned real estate investment opportunity funds backed by institutional investors. The Bradys are also working on a $60 million project to develop a lakefront residential resort community in Mont-Tremblant, Quebec.

ALL IN THE FAMILY? SELECTING CRITERIA FOR JOINING THE FAMILY FIRM

Deciding who will join the family business can be difficult. Most parents want their offspring involved, but not every child is qualified to do so. College degrees, trade school certification or hands-on experience are critical considerations.

The innate skills that family members bring to the table should also come into play when deciding who will be the heir apparent. "Personality, not necessarily birth order, was a big factor in our decision of who would run the company," says Tena Jackson of Circulation Experti. "Although Garrison is the oldest, it's his ability to lead people, work out finances with clients and his attention to detail that makes him the natural successor. Tenley knows the P.R. side, with her years of journalism experience at Newsweek and Inside Sports. They all are suited for their respective areas in the company."

A.A. Rayner Sr., founder of A.A. Rayner & Sons, a funeral home in Chicago, stipulated in his company's bylaws that only family members with professional certification could have ownership in the business. "Before my grandfather passed ownership of the business on to his children, he set up the bylaws so that you had to go to school and become a licensed funeral director and embalmer before you could participate in the company," says Charles S. Childs Jr., co-owner. "And that's still the way the bylaws read today."

Childs has worked in the family business for the past 20 years. A licensed funeral director and embalmer, he graduated from mortuary school in 1979. He shares ownership of the 52-year-old, $5 million company with cousins Pamela Rayner and A.A. "Trey" Rayner III, both of whom are also licensed funeral directors.

Documenting criteria for joining the family business is a foolproof way to ensure competency, but not every family business puts requirements in writing. "My father didn't, but I know that if I did not get an education in business, I would not have the responsibilities that I have now, and that was made very clear at a very early age," says Shane Brady, who graduated from New York's Long Island University in 1988 with an M.B.A. in finance.

Further, to prevent any misunderstandings about each family and non-family member's stake in the business, clearly define their roles and responsibilities in a written job description and keep it on file. There should be a clear chain of command indicating who's CEO, CFO and head of human resources if conflict is to be minimized.

Childs, 43, says that while his family works as a team, each owner holds a corporate office to maintain order in the business (Childs is president, Pamela Rayner is vice president and Trey Rayner is secretary/treasurer).

Determining how each family member will be paid, evaluated and to whom they will report is another key step.

Although there's no boilerplate on how to compensate family members, experts suggest either basing salaries on what the individual would earn in a comparable position outside the family business or linking pay to qualifications.

Most family businesses hire some employees who are unrelated. You want these workers to feel valued, and the best way to do that is to treat everyone fairly.

Richard Waller Jr. has worked for his family's business since he was six. In fact, he is the third-generation owner of Richmond, Virginia-based Waller & Co. Jewelers, with $1 million in revenues.

Waller, 60, points out that non-family workers often complain about nepotism. "There have been some pressures on me from my employees who took issue with one of my sons not coming to work on time. It created some friction because all my other employees were getting there on time," says Waller, whose grandfather founded the business 98 years ago. "So in order to be fair, I had him [my son] work extra hours and the problem was solved."

GENERATION NEXT: CREATING A SUCCESSION AND ESTATE PLAN

Perhaps the most difficult decision you will ever make is who will take over the company once you're no longer around. Creating a succession plan is a multipart process by which a company's founder maps out the cross-generational transfer of ownership, management and wealth of the business.

Unfortunately, statistics show that only 28% of all family-owned businesses have a succession plan. Why so few? "Nobody enjoys talking about their death," says David Rhine, a national advisor on family wealth planning for the accounting firm BDO Seidman in New York.

About 63% of family business owners wait until retirement age or even later to begin their succession plan, but ideally you should start at least 10 years prior to when you expect to hand over the reins. This will minimize the potential for future conflict and provide you peace of mind that everything is in order. A good place to start outlining the details of your succession plan is in your business plan (see "Making Sure You Go the Distance," April 1998).

Choosing a successor can be an emotionally difficult task for founders who want to avoid hurting the feelings of family members. But they must focus on the needs of the business or risk losing it all.

Family business experts advise choosing an heir who has been actively involved in the business and knows the industry, and has an interest in carrying on the tradition. Obviously birth order plays a role, but potential successors also include non-family workers.

An alternative arrangement is co-successors, which is gaining in popularity as 42% of all family-owned firms are looking at this type of structure. Keep in mind that co-succession should never be used as an excuse for not choosing a leader. Also, make sure that co-successors share similar goals, values and levels of commitment and have solid relationships with one another.

Once you choose your candidate(s), teach him or her the ropes. "I think one of the downfalls of family businesses is that the next generation does not fully know all facets of the business," Shane Brady says. "To succeed you have to make sure you're aware of all the good, bad, ugly, boring and exciting parts of the business."

Also, don't forget to devise an estate plan. This document puts in place the proper mechanisms for the actual transfer of stock ownership and wealth in the business.

At Circulation Experti the senior Jacksons own 60% of the company and their three children split the other 40%. That percentage will soon switch hands as the Jacksons continue to contribute the maximum amount allowed by law into their children's estate each year. "Soon we expect that they will own the majority stock of the business and be equal partners, each owning 33% of the shares," notes Tena Jackson, who served as the financial brains of the operation when she and her husband launched the company 30 years ago.

Over the next 20 years, about $7 trillion in assets will change hands as founders hand over their operations to the next generation. But who will ultimately get the money -- your kids or Uncle Sam?

Like all other businesses, family-owned firms must answer to the IRS. Under the Taxpayer Relief Act of 1997, family businesses will be exempt up to $650,000 in property next year, but can be taxed 37%-55% of their total assets beyond this amount on the death of a founder, spouse or single business owner.

For example, if you operate a $30 million company and have another $10 million in assets, the IRS can take about $22 million (55%) of that in estate tax if a plan is not in place.

Too often family-owned firms wind up selling the business in order to pay estate taxes. But you can minimize your estate tax burden by creating a will or establishing insurance trusts, life insurance policies or a buy-sell agreement for the disbursement of company stock holdings.

Estate planning is a complex part of operating a family-owned business, so don't go it alone. Seek help from a team of advisors including a tax attorney, accountant and insurance agent. Also, periodically revise and update your plan to accommodate changes in lifestyle, legislation or marital status.

THE FAMILY REFEREE: USING A FAMILY BUSINESS CONSULTANT

Like a basketball team vying for the championship title, family businesses need coaching in order to score big. That's why many turn to outside family business consultants to help them steer their operations. The Family Firm Institute, an international resource organization, publishes the Directory of Consultants and Speakers, a listing of nearly 150 family business consultants and advisors nationwide.

Family business consultants come from various disciplines -- including banking, education and psychology -- and can help you with a broad range of issues such as succession and estate planning and conflict resolution. Trust and respect are important factors to consider in choosing an advisor. But you want one who's willing to join the strategic team and not create a platform to pitch his or her own business agenda.

"It's absolutely crucial [to have an advisor] who is less biased because he or she is going to tell you what you need to hear, not what you want to hear," says James I. Herbert, Ph.D., director of the Urban Enterprise Initiative of the Family Enterprise Center at Kennesaw State University in Kennesaw, Georgia. "And oftentimes having an outside, objective view can help you see options that you may not see otherwise. I think you need that kind of feedback routinely to take you to the next level."

Costs will vary, but no matter the price, it's money well spent, says Herbert. "You need to understand that in passing down your business, you're not only transferring management of the operation, you're also transferring wealth, so you need the accountants, financial planners, lawyers and psychologists to help advise you on how best to hand over the business to the next generation."

Many family business owners get so bogged down with what's going on in their companies today, that they give no consideration to where their operations will be tomorrow. But with proper planning, a healthy dose of patience and a well-trained professional consultant, you can keep your family in business and your business in the family.

Fitness Tools for Your Family Business

ASSOCIATIONS:

Arthur Andersen Center for Family Business 711 Louisiana St., Suite 1300 Houston, TX 77002 800-924-2770 www.arthurandersen.com/cfb

Assists family-owned businesses with a range of issues including management, ownership and taxation. The center also provides various books, newsletters and seminars tailored to the needs of family firms.

The Family Enterprise Center Kennesaw State University 1000 Chastain Rd. Kennesaw, GA 30144-5591 770-423-6045

Fosters family business education by providing a number of services including research programs, annual retreats and a family business academy.

Family Firm Institute (FFI) 221 N. Beacon St. Boston, MA 02135 617-789-4200 www.ffi.org

An international organization that assists family businesses by increasing the skills of family business advisors, educators, researchers and consultants.

PUBLICATIONS:

Wars of Succession: The Blessings, Curses and Lessons that Family-Owned Firms Offer Anyone in Business by Roger Fritz (Meritt Publishing, $17.95)

The Family Business: Power Tolls for Survival, Success, and Succession by Russell S. Allred and Roger C. Allred (Berkley Publishing Group, $12)

Directory of Consultants and Speakers This FFI publication lists nearly 150 family business consultants and advisors nationwide (www.ffi.org).