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Family matters.

When William S. Ward pulled up in front of his Columbus, Ohio, home in April 1881 with a team of horses and a trucking cart, the four Ward sons immediately became the first employees of their father's moving firm.

Over a century later, E.E. Ward Transfer & Storage Co. (named after William's youngest son), one of the nation's oldest black businesses, remains a family affair. "Our business is a way of life," says Eldon W. Ward, 77, grandson of the founder and president of the 110-year-old firm. "It's more than just saying you're in business to make a buck."

Ward's niece, Dolores Smith White, 57, the company's office manager and representing the fourth generation working in the 17-employee firm, projects earnings to be just under $500,000 in 1991. Both hope a fifth generation picks up the torch.

For many African-American businesses, home is not only where the heart is-- it's where the hard work is. Consider: About 90% of this country's 20 million firms are family operations, which taken together generate about 40% of the gross national product. According to James W. Lea, author of Keeping It in the Family: Successful Succession of the Family Business (John Wiley & Sons, N.Y.), a family firm is a business "owned, operated or controlled by one family" or a "family affair in which family members have a direct stake."

The fact that multibillion-dollar operations got their start around the family hearth should come as no surprise. Family-based values of loyalty, thrift and collective responsibility form an excellent foundation for any business. For African-American families, these values resonate more deeply than the profit-and-loss column: They have meant survival itself in the face of enormous odds.

"Even though we as an ethnic group have not had a wealth of experience in corporate America, we have had a wealth of entrepreneurial experience based in families," says Iris Randall, president of New Beginnings, a New York and Connecticut-based consulting firm that has worked with numerous family firms since its launching in 1984. "Black beauty parlors, barber shops, funeral homes and other businesses were created by people who looked to their families first to get the business started."

But black-owned family businesses need more than just shared family values to compete in an economy devastated by the recession. A look at what makes family companies tick and survive, can suggest a blueprint for success in any business, but especially for those committed to the durability of the black family as a commercial venture.

It is family enterprise, after all, that has yielded many of the largest black-owned businesses in America--Soft Sheen Products Inc., Johnson Publications Co. Inc. and The Thacker Organization to name just a few of the BLACK ENTERPRISE INDUSTRIAL/SERVICE 100s firms--and it is family enterprise that will undoubtedly produce the black business success stories of the 21st century. "There are good opportunities for family businesses in the 1990s," says Sharon Giles Alexander, 39, president of the Roseland, N.J.-based specialty advertising firm EPC International Inc. "We'll probably start seeing more family businesses, because things are difficult in the corporate world."

How To Make It Work

Controlling your own destiny as a business owner is identified time and time again as the driving force of entrepreneurial activity. Linking your company's fate to family dynamics creates enormous potential for the growing firm, but also poses potential problems.

Capitalizing on the many advantages of family-owned enterprise, while avoiding its pitfalls, ensures not only stable business growth, but stable family life. The most obvious advantage of starting a business around the family hearth is cost. Intertwined in a fabric of mutual destiny, family members support one another with second jobs or savings, while the fledgling business gets off the ground. "You can launch a family business with a lot less than other businesses," says William R. Giles Sr., who used $10,000 in savings to launch Roseland, N.J.-based EPC International in 1977 with his son, William Jr., and his daughter, Sharon. "Families look for the long haul and make sacrifices."

After a modest start, selling digital thermometers as a promotional product for corporate clients, EPC has expanded into thousands of custom-imprint items, ranging from key chains to crystal vases. With such clients as AT&T, Public Service Electric & Gas of New Jersey and Merck & Co. Inc., EPC projects revenues of $5 million for 1991.

Giles used to be an executive and partner with the Atlanta-based Cannolene Co., a hair care and cosmetics firm, but tired of the grueling thrice-weekly commute from his New Jersey home. Starting a family enterprise was an obvious way to combine professional and family interests.

EPC is typical of family firms launched with family finances--often the only source of capital for fledgling enterprises. Thanks to today's credit crunch, family savings are not only the most viable form of business financing, but also the cheapest, often offering a debt-free financial launching pad for a new enterprise.

Labor costs, often the highest-priced item in a company's balance sheet, pose fewer problems for start-up family firms. In many cases, family employees simply defer salaries until the business is solidly in the black. That scenario is nearly unimaginable for other sorts of businesses. For example, Terri Dismuke, office manager for the Diskette Copying Inc. (DCI), in Torrance, Calif., didn't get paid during the company's first year of operations. To help bring in family income, she worked nights as a word processor. Meanwhile, her husband, Lawrence Dismuke, the company vice president in charge of equipment purchases, held down a full-time job as an assembly worker at the General Motors plant in Van Nuys, Calif. Lawrence Dismuke's sister, Donna Dismuke-Gray, Disketta's treasurer, works as a patternmaker for Jackie O's, a Los Angeles-based dress manufacturer, while his brother-in-law, Stephen S. Gray, is the full-time company president.

DCI, which uses high-speed copiers to duplicate software packages for customers like Smith Micro Software, American Training International and TRW Information Systems, was launched in 1989 by the two couples with $70,000. The Grays took out a $40,000 mortgage on their house, while the remaining $30,000 came from savings.

By saving money on salaries and benefits, DCI survived its first year with $150,000 in revenues, jumped to $250,000 in 1990 and is well ahead of that pace for 1991.

Giving up the security of a steady paycheck for the sake of launching a family business often goes with the territory. "One of the things a lot of people don't think about when they consider starting a family business, is that they'll probably be the last ones paid," says Mark Coleman, 32, vice president of Scientific Models Inc. (SMI), of Cambridge, Mass. "In a family firm, the important thing is not what you'll get in the short run, but how you're going to make your work pay off down the road."

SMI, started in 1969 by company President David Coleman and his wife and corporate secretary, Virginia, makes architectural models, industrial part mock-ups and defense-industry models for clients ranging from Saudi Arabian sheiks to Raytheon Corp. The firm, which earned $1.2 million in 1990, also has a growing plastic-injection division.

While most family firms worth more than $ 500,000 Are incorporated in order to limit personal liability, very few are publicly owned. The reason: Most families went full control of their company. Running a business as a sole proprietorship or privately held corporation keeps the firm fromt he clutches of dividend-hungry shareholders. Those firms that do decide to go public usually do so in order to raise cash by selling company stock. According to Boston tax consultant Vincent Yancey, an unincorporated sole proprietorship--the most common ownership structure among small family businesses--offers a number of advantages to family businesses in the early stages of development. "New family businesses often incur losses in the early years which can be written off against income accrued by the owner," says Yancey.

Dealing With The Problems

The downside of company control wielded by one or two family owners is well-known to anyone who's ever tried breathing life into a stodgy operation that views change as a threat.

A family firm can be a plodding firm, hopelessly out of step with current market forces and unattractive to a new generation trying to forge its own way in the world. Perhaps that explains why, less than 15% of all family businesses survive into a third generation. "The average life of an entrepreneurial or family-owned company is only 24 years," says author Lea. Working in close proximity in a family firm has obvious drawbacks for family members, especially in a start-up operation. Long hours, no vacation, and low pay head the list.

When workplace arguments flare up between family members, there's an obvious spill over into family life, which isn't always easy to separate from the office. "Conflict cuts a little more deeply when it involves family members," says Stephen Gray of DCI. "It's important to remind everyone that this is a business, and it has to be run that way."

Gray's brother-in-law, Lawrence, recalls a number of heated discussions early in the firm's history that got carried home. By holding periodic councils at the office, he says everyone has a chance to air their gripes and do their best to leave the disagreements at the office. "You have to do it," says Lawrence, "If you want to keep your family intact."

Seeking Outside Help

A family business, like any concern, grows in stages. The initial burst of entrepreneurial enthusiams eventually wears off as the firm matures. That's when it's time to apply professional management techniques to tighten the firm's operation and smooth out the rough edges.

Terri Dismuke recalls one of DCI's first big orders--to make 30,000 copies of a personal income-tax program. At the time, the company lacked equipment to automatically label and stuff diskette sleeves. Their solution? A page right out of Americana: "We called our relatives," laughs Dismuke. "We brought them to sleeve and afterwards bought them pizza." That was fine for the first time, but DCI knew it couldn't depend on the patience of blood ties to handle future orders. After a meeting of the board, the company decided to buy equipment to make DCI more competitive--and less reliant on outside family.

Like a dysfunctional family, a dysfunctional business is usually characterized by an inability or unwillingness to communicate. Instituting open channels of expression through regular board meetings, family councils or advisory sessions help ensure a clear understanding of where the company is going and what everyone's role is.

"In family businesses, the real issue is to teach everyone to collaborate," says Steven Swartz, a partner in the Minneapolis-based consulting firm McGladrey & Pullen, a specialist in family-business issues. "A family that communicates in a healthy manner--able to express thoughts, wants and feelings, as well as able to tolerate and talk through differences--is more likely to develop win-win situations when challenges arise."

As a firm expands, so does its challenges, increasing the need for outside advice. Consultants or advisers brought in as members of a formal or informal advisory board ought first to understand the vision underlying the business. Rod Correll, executive director of the Family Firm Institute in Johnstown, N.Y., advises against collecting a panel of nodding heads to pass for an advisory board. "Get blunt people," says Correll. "Part of the value of outside advice is their fresh perspective. You don't want them keeping their opinions to themselves."

Preparing for Succession

Perhaps no issue haunts family businesses more than the prospect of turning over control and ownership of the firm once the founder decides to step down. It;s the stuff of soap operas and lawsuits--a potentially tangled web of emotional and financial intrigue. It's also the area most likely avoided by relatives in business together, many of whom find discussion of such issues unseemly, inappropriate or downright intimidating--like squabbling over the possessions of a dying man. The consequences, however, of failing to establish an unambiguous process of succession can be disastrous.

Experts say that a sound succession plan--one that takes into account all tax considerations and coordinates all financial elements to maximize benefits, protects the owner's heirs and distributes the assets--should answer two basic questions: Who will own the company and control its finances? And who will manage the business if the owner retires or dies?

You should also ask yourself the following questions when you're thinking about passing on the business.

* Have you chosen a successor and are the succession arrangements clearly defined?

* Have you set up a buy-sell agreement with your successor so the business can change hands smoothly?

* Does your plan protect your key employees if you die? What about their pensions--are they safe?

* Have you updated your plan in light of any new tax laws?

There's a variety of strategies a company can follow to transfer assets to family members. Tax and estate-planning experts recommend that as many options as possible be considered in the long run, it'll be worth it.
COPYRIGHT 1992 Earl G. Graves Publishing Co., Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:includes helpful tips on family business management; African American family business enterprises
Author:O'Connor, Brian Wright
Publication:Black Enterprise
Date:Jan 1, 1992
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