Family ownership ensures firm’s future

Chris Jones

Friday, March 1, 2002 | 11:01 a.m.

In the early 1990s Prestige Travel owners Kathy and Leo Falkensammer VI turned down a potentially lucrative deal to sell their family-owned business largely on the recommendation of their two teenage children.

In the process, the couple launched a business succession plan that will carry leadership of one of the state's largest travel agencies into the family's next generation.

"I had been approached several times about selling and my answer was always, 'I won't do it until (our) kids tell me they're not interested in the business,' " said Leo Falkensammer VI, vice president and chief financial officer of the Las Vegas-based company.

Once the Falkensammers' two younger children, Leo Falkensammer VII and Ellen, expressed a desire to work in the travel industry, their parents started teaching them the trade. More than 10 years later, the now 29-year-old Leo VII serves as vice president while his 27-year-old sister is company director.

Their children's involvement has made the elder Falkensammers more secure about their company's future.

"It makes it easier when you know you have a blood relationship that wants to take over the business when you step aside," Falkensammer VI said. "We all work a little bit harder for that reason alone."

But such foresight is absent among the two-thirds of American family business owners who operate with no succession plan, according to a 1997 survey by Arthur Andersen/Mass Mutual. The same survey said only 30 percent of family-owned businesses survive into the second generation, and those numbers dip to 12 percent and 3 percent with each successive generation.

Those statistics are bad news for the nation's economy, where family-owned businesses account for an estimated 60 percent of total employment, 78 percent of new jobs and 65 percent of all wages paid in the United States, according to a 1999 article published in Financial Planning magazine.

Carl Rowe has helped local businesses to develop succession plans through the Las Vegas-based accounting firm Fair Anderson & Langerman since 1997. Despite his efforts, he said fear continues to cause many family business owners to avoid preparing long-term transition strategies.

"People don't like to face their own mortality," Rowe said. "It can also put (owners) in a position where they have to favor one child over another."

Still, Rowe said succession is an issue that shouldn't be ignored.

"Just like when someone dies without a will, (the lack of a succession plan) causes horrible problems for your family's business," Rowe said.

Like the Falkensammers, Rowe suggests owners start early and devote at least three years toward training their eventual replacement.

"A company whose reputation relies only on the founder has almost no assets once that founder is gone," Rowe said. "It needs to develop a good management team and that can't be done if someone waits until they're ready to walk out the door." To help prepare their children, the Falkensammers initially loaned them money to purchase and manage a rival agency, Travel Unlimited. A few years later, that company was merged into Prestige Travel and the children continued to work with their parents in the combined agency.

"You put your children at your elbow so they learn the business," Kathy Falkensammer said. "Having the opportunity to sit with management and see the negotiations has been invaluable to them."

Dan Gerety, managing director for the business consulting firm RSM McGladrey, said the interest level and skills of an owner's children can also have a large effect on succession planning. His company often uses psychologists and management training tests to help determine which family members are best suited to oversee a business.

"Sometimes an owner thinks a person is the right one to take things over, but we'll test them and determine they don't have the right skill set," Gerety said. "A lot of times people are making family decisions that ought to be business decisions."

When family members are not an option, Rowe and Gerety said founders should seek to improve their business' value by training new managers who can carry on alone. That option also increases an owner's chances of selling the business prior to his or her departure, Rowe said.