Like father, like son?
Cautions, advice for transferring business ownership to the next generation

By Katherine Michalets - Freeman Staff

March 25, 2017

NEW BERLIN - Transferring ownership of a business from one generation of owners to the next isn’t as simple as signing a form and figuratively handing over the reins. Jesse Ziemienski, owner and president of American Tree Experts in New Berlin, knows that all too well, having taken the business over from his father and preparing to hand it down to his son.

“There is so much chemistry involved and every situation is different,” Ziemienski said. “You need to have someone who is interested and wants to do it.”

American Tree Experts was founded in 1950 by Ziemienski’s father, Chester, and now Ziemienski is preparing to pass it to his son Dean, who is vice president.

Ziemienski said it’s important that an owner grooms the next generation to properly take over the business early so they reach the point where they really want to do it. He said it’s also important for business owners to realize there is much involved with running a business, such as employee and customer issues, taxes and insurance.

Tom McRae with Water Street Advisors agreed.

“Sometimes it’s a comedy, sometimes it’s a tragedy and sometimes it is a great legacy, success story,” McRae said, adding that just because a person is raised in a business, doesn’t “really mean that it’s in your gene pool.”
 

Preparation

Shawn Govern, an attorney with DeWitt, Ross & Stevens, stressed that preparation to transfer a business, whether to the next generation or an employee, needs to be done in advance.

He said it’s important to work with a team on transferring ownership, including a bank, law firm and others who understand the factors involved.

In addition, Govern said it’s important to “make sure that the transition is structured in such a way that it’s favorable. You’d like it to be a win-win situation so mom and dad and grandma and grandpa aren’t riding off into the sunset without much.”

In fact, one of Ziemienski’s sons has no interest in the business. When he took the business over in 1989, Ziemienski said, it was a fairly bare-bones operation with no permanent facility.

“So we just came up with a purchase price between my dad and I and I bought him out and he backed out and I took over the reins,” he said.
 

Repercussions

Things are more complicated with the transition from second- to third-generation owners.

Ziemienski said American Tree Experts has more value now than it did in 1989 so he has a different arrangement with Dean, who is getting compensation for the hours he has worked. The hope for Ziemienski is that Dean will have a 25 percent ownership in the business when he retires.

McRae said one of the biggest mistakes owners can make is going on assumptions.

“Not preparing the next generation for leadership and just assuming they know they know by osmosis by seeing you make decisions,” McRae said about a frequent mistake. He said it’s important to prepare the next generation of owners to understand the financial risks and rewards. They also need to learn how to handle customers and the responsibilities and risks connected to owning a business.

Not only are employees’ well-being vulnerable when a business changes ownership — so are the suppliers and others who do business with it, McRae said.

“It’s not just your family, not just the people who work for your family, it’s the community,” he said.
 

Benefits

Ziemienski said by having his son earn a percentage of the company through working for it, he kept Dean invested in the company and its future. There isn’t anything in writing, however, but Ziemienski said his son understands that should he quit he’ll lose that equity he’s earned.

“One of the big advantages is not having to find a buyer. You can find a lot of businesses closing because they can’t find a buyer who will pay what price they want,” he said. “They understand the operation with a running start so he’s going to know how to handle things and that’s a value to me because I can probably get out of the business what it’s worth, but that’s never a guarantee when you are in the marketplace.”

McRae cautions that just because a business remains in the family does not guarantee success. “It’s often not what the child has the energy or desire to do. It’s amazing how many people just assume they are going to do it,” he said.
 

Aging business owners

Govern will give a presentation on transferring ownership of a business on May 4 at Westmoor Country Club in Brookfield with Sikich Financial and ActionCoach. It is a presentation he has shared before and he said is in demand as baby boomers prepare to retire.

According to Metropolitan Milwaukee Association of Commerce, Govern said, there are approximately 27,500 businesses in the metro Milwaukee area with fewer than 100 employees. Of them, 12,290 are owned by individuals 55 years and older and 4,370 are owned by individuals 65 years and older.

In the next 10 years, Govern said about 70 percent of small businesses will have owners who are retiring.

To learn more about the ownership transfer presentation, go to aceg.biz.events.
 

At a glance

27,500: approximate number of businesses in the Milwaukee metro area with fewer than 100 employees

12,290: business owned by individuals 55 years and older

4,370: businesses owned by individuals 65 and older

Source: Metropolitan Milwaukee Association of Commerce

Email: kmichalets@conleynet.com