Keeping It in the Family
Succession planning is trickier with relatives in the mix.
Lewis Braham
April 21, 2016 — 7:14 PM EDT
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For more than a half-century, Mr.
Bartley’s Burger Cottage has
been a Harvard Square
institution. Six days a week,
college students line up around
the block for creations that
include the People’s Republic of
Cambridge, a hamburger topped
with coleslaw and Russian
dressing, and the Chris Christie,
which is fortified with marinara
sauce and mozzarella. General
Manager Bill Bartley was born in
1960, the same year his father, Joe, started the Cambridge, Mass., restaurant. Although all four of
his siblings have worked there at some point in their lives, Bill is the only one still there. “I was
groomed to take over, like a veal calf,” he jokes. “They kept me in that confined area in the
kitchen so I didn’t get too big.”
Mr. Bartley’s is somewhat of a rarity: Only about a third of family-owned businesses survive
into the second generation, 12 percent make it into the third, and a mere 3 percent to the fourth,
according to the Family Business Institute. “Succession planning has become a hot item with
every organization we work with,” says Castle Wealth Advisors’ Gary Pittsford, an Indianapolisbased financial planner. “There are more than 27 million closely held businesses, and baby
boomers are now in that 65 to 70 age bracket. There’s upwards of 5 million boomer owners
trying to figure out what to do.”
Family ownership adds a layer of complexity to succession planning because there are more
stakeholders involved than in a regular business. Charlie Haines, a financial planner at Kinsight
in Birmingham, Ala., recommends families start working out succession issues at least seven
years before the founder plans to retire. An industrial psychologist can evaluate each family
member’s skills and personality to determine who’s most suited to run the business. A board of
directors can also help smooth the transition from one generation to another, says Haines, though
he admits the concept can be a hard sell for founders: “They say, ‘I don’t want someone looking
over my shoulder at what I’m doing.’ ”
Financial planners say that early on in the process families should retain an independent third
party to assess the value of the business, based on cash flow, so its assets can be divided fairly
among several family members if need be. When Roger Pine and his wife, Natalie—both
financial planners—purchased half of Briaud Financial Advisors from his mother-in-law in 2011,
they got outside help so family ties wouldn’t influence the deal. “We went to a lawyer who
specializes in buy-sell transactions for businesses,” he says. “He gave us a template for the
transaction that covered every possible iteration of horrible failure you can think of—divorce,
death, mental incapacity—and we had to talk through every single one.”
Bill Bartley’s brother Bob, a financial planner
and certified public accountant based in
Bedford, N.H., advises against granting shares
to heirs who aren’t directly involved in the
enterprise. “You don’t want outside parties
having voting shares of stock micromanaging
the people running the business who’ve put
their blood, sweat, and tears into it,” he says.
Instead, he recommends the founder purchase
life insurance with a value equivalent to what
the nonemployee heirs would receive in the
business if they did own shares. Alternatively,
heirs could receive nonvoting shares, so they
could benefit from the business’s growth
without controlling it.
At Mr. Bartley’s, Bill says he and his dad
butted heads on everything from employee benefits to burger names. Although it was Joe who
instituted the comical menu 30 years ago—an early entry was the Liz Taylor, a club sandwich
with a “heavy breast” of turkey, according to its description—the patriarch thought his son often
pushed the limits of good taste. Joe objected to one creation Bill dubbed the Afghan, which on
the menu carried the punch line, “once you attack this burger, you’ll never leave.” And he didn’t
much like the Obamascare, which premiered three years ago during Halloween.
Bill and Joe, who is not officially retired, split profits from Mr. Bartley’s, but none of the other
siblings get a cut. “I feel as though me and the restaurant are even,” says Bill, who began
working at the eatery at 13. “It’s given everything to me, and I’ve given everything to it.” As for
what role the next generation will play, that’s still a big unknown. Bill’s oldest son is getting his
Ph.D. in theater, and his daughter is a schoolteacher—and a vegetarian.
The bottom line: Just 30 percent of family-owned businesses survive into the second generation.
Succession planning can improve those odds.