Family Business: Planning Your Company's Future

May 1, 2004

If you’re a broker-owner, perhaps you’ve heard the precarious odds about your company surviving into the next generation. Numbers don’t lie. Only 30 percent of the nation’s 24 million family businesses make it to a second generation, 10 percent of those continue to a third, and 3 percent to a fourth, says Joseph Astrachan, editor of Family Business Review, a journal of The Family Firm Institute in Boston, a membership organization dedicated to helping family businesses.

Why such slim odds? Potential heirs may prefer to practice law, medicine, or accounting rather than list and sell houses. Owners may choose to sell their business for lucrative sums to acquisition-hungry companies.

Some owners want to pass along their business but aren’t proactive. They fail to plan for the “what-if” scenarios that occur, says Rich Arzaga, a financial planner at Sagemark Consulting in San Ramon, Calif., who advises broker-owners. Others say they’re too busy putting out the proverbial daily fires to think about the future. And some won’t yield control since to do so is tantamount to acknowledging their mortality.

Even those who plan to let go within the next few years don’t always decide in advance who’ll take their place, according to a survey last year of family-owned businesses by MassMutual Financial Group in Springfield, Mass.

Owners who don’t plan put their company’s management and ownership at great risk, says John Messervey, president of the National Family Business Council, a consultancy in Lake Forest, Ill. “If they die suddenly, an heir apparent may not be ready to lead or a spouse may lack interest,” he says.

And a leadership vacuum often spurs sales associates to leap to another company, says Arnold Janofsky, vice president and general counsel at ERA Franchise Systems Inc. in Parsippany, N.J.

A smooth succession reflects an evolutionary process, experts say. How long it takes depends on the size, complexity, and health of the business and the competence of those waiting in the wings. Generally it takes between four and six years if the owner has truly stepped away and isn’t managing from the sideline, which prolongs the process, Astrachan says.

At Long & Foster Cos., whose Long & Foster Real Estate Inc. is the largest privately owned real estate brokerage nationwide, chairman and CEO Wes Foster, 70, has structured his business to survive without him until son Paul, 40, and son-in-law Terry Spahr, 38, are ready to lead. Foster has tapped a triumvirate of presidents to oversee operations and act as a bridge between the generations.

“This evolved as I began to step back and think about the fact that my son and son-in-law weren’t ready to take over,” Foster says. “We have three good people who run the companies. Of those three, Brenda Shipplett is also chief operating officer and first in line.”

This type of smart planning is gradually taking place more often, as owners try to improve succession odds, thanks, in part, to advice from a growing cadre of experts. (See FFI’s Web site,, for a directory of consultants.)

No single strategy is right, as evidenced by the different paths family-owned brokerages are testing. None of the owners of the following companies has set a timetable to pass the mantle, but each has taken steps in that direction. The clock is ticking.

John J. Lonergan Insurance & Real Estate Agency
Date founded 1919, insurance; 1978, real estate
Number of generations: Three
Who minds the store: John, 65; Jamie McManus, 27; Jay, 27; Judy, 62; Liz, 35
Who’ll take over: Jay, Liz, and perhaps Jamie
When will succession occur: No plans
Succession issue: Planning for a smooth transition with several members on board
Lessons to pass on: “Reputation, reputation, reputation is what matters most; extend yourself; and treat people as you want to be treated.”—John Lonergan

Lonergan Insurance & Real Estate Agency, Medford, Mass. The Longerans have defied the odds by keeping their family real estate and insurance business going strong for three generations. Owners, John, 65, and Judy, 62, cite the close bond between them and also with their younger family members as a reason the business founded by John’s late father has survived. The next generation includes son Jay, 27, daughter-in-law Liz, 35, and nephew Jamie McManus, 27.

“John and I are both from large families where we learned to compromise,” says Judy, who’s been married to John for 38 years. “That’s something we taught our own children, nieces, and nephews.”

They’ve also worked smartly. They added the real estate business in 1978 to the insurance business that John’s father had started in 1919. Each niche helps to offset the other during down cycles.

The Lonergans never pressured their three children to join. In fact, they were surprised when Jay, the youngest, expressed interest after working for MTV in New York.

“I told him I’d love it but wanted him to know there’d be times when he’d be well off and times when sales wouldn’t come in,” says John, who joined his mother in business after he graduated from college in 1961, seven years after his dad died. “It was up to Jay to make his way, and if he decided not to, I told him we’d still love each other.”

The senior Lonergans plan to address succession formally with their accountant, though John hopes to keep working as long as his late mother did. She stopped two weeks before her death at age 91. He and Judy have also made it clear to their two children not working in the business that it belongs to Jay and Liz, and possibly to Jamie. Jay will oversee the real estate side, which has five salespeople; Liz will run the insurance business, which handles property and casualty claims. The other children will inherit other assets.

Stefik Realty Co. Inc.
Date founded: 1948
Number of generations: Two
Who minds the store: Robert, 80; David, 37
Who’ll take over: David
When will succession occur: Not decided
Succession issue: Who takes over after David
Lessons to pass on: “Be happy in what you do; make a name for yourself.”—Robert Stefik

Stefik Realty Co. Inc., Niagara Falls, N.Y. Most heads of public corporations would’ve retired long before age 80. But Robert Stefik, head of Stefik Realty Co., is still running the company he founded in 1948. He has tapped a successor—the youngest of his five children and the only one interested in his residential and commercial brokerage business. David, 37, started his career in the golf industry but 14 years ago decided that his financial background offered a good fit for his dad’s company.

“My father had good people working with him,” David says. “He didn’t want them to think I’d be thrown leads and given preference. He knew it was more important for the business to succeed than for me to step on other associates’ toes.”

He joined anyway, hustled, and tried to show no sense of entitlement.

His father remembers David’s first few years: “He came in the 1990s when there was tremendous business, and I liked having him. He’s professionalized operations and paid his dues,” says his father, who isn’t leaving succession to chance. He added a codicil to his will that says David will take over. He’s also given him a small equity stake.

David, too, is thinking ahead. His biggest concern is the ability to secure listings, since the city has lost significant population in the last 50 years and there are more real estate competitors; he’s also not sure who’ll take over from him since he doesn’t yet have children. “But you never know,” says Stefik, married for four years.

ERA King Real Estate Co. Inc.
Date founded: 1969
Number of generations: Three
Who minds the store: Everett King, 50; Anna King, 47; Cynthia Roden, 50; Sylvia Bentley, 50; Jason Williamson, 28; Jeremy Wright, 27; and Dennis Wright, 49
Who’ll take over: If something happens to the Kings, Jeremy, Josh Wright, 24 (who now works for Cendant Mortgage), and Jackson King, 15, will inherit the company.
When will succession occur: No plans. “If you’re good at real estate, you don’t retire, you just die,” Everett says.
Succession issue: Whether ownership can be shared by the three third-generation members
Lessons to pass on: “Be honest and ethical; embrace change or the business won’t grow.”—Everett King

ERA King Real Estate Co. Inc., Anniston, Ala. Is entrepreneurship passed along in the genes? Maybe. The owner of ERA King Real Estate Co., Everett King, joined his late father Jack in business straight from college in 1978. “I liked the flexibility of being an entrepreneur,” says Everett, whose city is about 60 miles from Birmingham.

Everett’s grandfather, Thomas Marvin King, known as T.M., deserves credit for the original burst of entrepreneurialism. In the 1940s, he started a hardware store, which became a small chain. His son Jack came on board after college but didn’t like being stuck in a building selling tools, Everett recalls. He started Jack King Realty in 1969 to build and sell homes on the side and eventually made it a full-time venture.

Soon after Everett came on board, he knew he had to add his own imprint to help the company grow, so he added property management to the mix of building, buying, and selling houses. He also showed how to blend a diverse group of family members at work.

“You’ve got to constantly change a business to keep things fresh. The business was different 10 years after I joined and will be different a year from now,” says Everett. It now numbers 42 sales associates and a staff of 16 in four offices and includes a large circle of relatives and potential successors.

Everett’s wife Anna, ABR®, joined 12 years ago after working in the textile industry. “I encouraged her,” Everett says. “She thought real estate was nothing more than showing houses to women, but I said, ‘Give it a year and see how much more it is.’ She did, and this year at ERA’s annual convention she was named its top ‘all-around’ sales associate in the country,” an honor for the person who demonstrates excellence in several categories, including total units closed, use of ERA programs, and customer satisfaction, according to ERA management.

The business also includes Anna’s twin sisters, Sylvia and Cynthia; one sister’s son and daughter-in-law; Anna’s son from a prior marriage; and her ex-husband. “He got his license about one-and-a-half years ago, after working for a mortgage company. He called Anna to ask where he should work if not for our company. She said, ‘I wouldn’t work for anybody else. Talk to Everett about working here.’ I had nothing against him,” Everett says. “Anna and I have been married 17 years, and I knew he’d be a good salesperson. He is.”

How does this blended family work so well together? “Each family member is motivated by something, and we all get along,” says Anna. “But nonfamily are as much a part of this business as family. Without our sales associates, we’d have no success.”

The company continues to follow Everett’s mantra of change. His goal: To become the largest brokerage in Alabama. Although he and Anna have no plans to retire, they’ve got an ace, they believe—their 15-year-old son Jackson, who’s expressed interest in moving the company into another generation.

GE Realty
Date founded: 1979
Number of generations: Two, and soon a third
Who minds the store: Gary Ericson, 62; Gregory, 38; Gary Jr., 35
Who’ll take over: Gary Jr.
When will succession occur: No plans to retire
Succession issue: Getting two siblings to work together while tapping one to take over
Lessons to pass on: “Set your goals and focus on obtaining them, but don’t forget to balance work with time for family.”—Gary Ericson

GE Realty, Thousand Oaks, Calif. Gary Ericson, CRS®, GRI, 62, was determined not to pressure his daughter and two sons into joining the business he started in 1979, after serving in the Navy and then managing other companies. “I wanted them to go out and find what the world is made of on their own. But I also told them I’d love to have them if it seemed right,” he says.

All three graduated from college and pursued other professions. His daughter Kendra still works for an independent mortgage company. Sons Gary, 35, and Gregory, 38, joined the business within the last seven years.

The senior Ericson credits the partnership’s success to multiple factors: carefully training his sons well in all the dos and don’ts of the business, putting everyone on commission so there’s less competition about who earns what, eschewing perks such as cars and country clubs that add a sense of entitlement, staying small to remain close to clients and avoid layers of management, and emphasizing the “family” part of the business in ads to connote integrity and longevity.

With the advice of his accountant and attorney, Ericson incorporated and decided that Gary Jr. eventually will run the business since he’s more experienced. “If my sons want to share management, that will be their decision,” says their father, who expects the business will move into the third generation after a grandson, Trevor, 20, graduates college this summer.

Lakewood Realty
Date founded: 1984
Number of generations: Two
Who minds the store: Dolly Warren, 54; Tammy Warren Krez, 27; Ted Krez, 27
Who’ll take over: Tammy and probably Ted
When will succession occur: Not for a long time
Succession issue: Not willing to set a timetable
Lessons to pass on: “This is a very competitive, hard business. But at the same time, the sky’s the limit if you put in the time and effort.”—Dolly Warren

Lakewood Realty, Madison, Wis. Tammy Warren, ABR®, a science major in college, had no intention to join her mother Dolly Warren, ABR®, CRS®, in the real estate company Dolly founded 20 years ago. But after traveling for a year following her graduation, Tammy came home and got her real estate license, “just to help out when my mother was busy,” Tammy says.

Dolly tried to discourage Tammy, telling her to work first at a large company so she’d see another person’s viewpoint. Dolly also worried about training her daughter.

“I think I’m very set in my ways and highly detail-oriented,” she says. But Tammy persisted and won out.

Five years later they’re partners who frequently go on listing appointments together and split commissions. “It’s fun to work with your mom,” Tammy says.

Her mother is quick to repay the compliment. “She’s got the right personality and has become detail-oriented. But it took getting used to, especially in the training. Sometimes I’d have to remind her, ‘Now, Tammy, who’s the boss?’”

Seven months ago Tammy’s fiancé Ted Krez left software sales to join the Warrens.

Although Dolly hasn’t written a succession plan and retains all equity, she’s thinking about how a transition will occur. “I know it’ll happen, and I’m grooming Tammy in case that day comes sooner than expected. At the same time,” she says, “I want to work as long as I can contribute.”

Neumann Real Estate
Date founded: 1969
Number of generations: Three
Who minds the store: Harry Neumann, 74, Chip Neumann, 48; Russ Neumann, 47; Jeff Neumann, 45; Bob Neumann, 41; Shaylene Mallozzi, 40; Joe Mallozzi, 41; Heather Neumann, 22
Who’ll take over: Russ
When will succession occur: “When the time is right,” says Chip.
Succession issue: What the future organization will look like with so many family members involved
Lessons to pass on: “An early mentor in my career taught me to ‘find the need and fill it’—and so it goes. I’ve done my best!”—Harry Neumann

Neumann Real Estate, Ridgefield and New Fairfield, Conn. Many family businesses come unglued in successive generations, as relatives fight over responsibilities, leadership, and compensation. Five Neumann siblings are working together by following a formula developed by their father Harry Neumann, GRI, 74, who’s still active in the business he founded.

Harry modeled his strategy after the service-oriented Ritz-Carlton Hotel Co. “Our sales philosophy is to make buying and selling pleasurable. We consider the front desks at our two offices the equivalent of concierge stations,” says Chip Neumann, 48, CRS®, who joined the business right after college, as did brothers Russ, 47, Jeff, 45, and Bob, 41, and sister Shaylene Neumann Mallozzi, 40. Shaylene’s husband Joe, 41, also works in the business. Only Janet, another sister, decided to work elsewhere. Chip’s oldest daughter, Heather, recently joined.

The second generation developed its partnership by melding their different strengths, says Chip, who oversees marketing for the 20-member staff at the offices, which are 20 miles apart. There’s no daily or long-term competition about who earns how much, since income is based on commission rather than seniority. Shaylene is the exception. She receives a salary for overseeing office technology and relocation. Most important, all the relatives agree that Russ is the best one to lead.

Key Succession Issues

Q:What are the most critical considerations when you plan for succession?

A: Owners have to decide which children will inherit the business and why. The children who don’t receive the business should be “equalized” in the distribution of the parents’ remaining assets. The business has to be valued. Nonfamily employees have to be keyed into the succession plan. And funds must be provided to pay for estate taxes, possibly through insurance.

Q:What’s the most important criteria to determine who inherits the business?

A: Finding the child, relative, or non-family member who’s the best fit for the brokerage—that is, the most capable and interested person.

Q:How do you divide a business equally and fairly if some kids don’t go into it?

A: It’s generally not a good idea to give one child the business, and another, not in the business, the property where the business is located. It’s usually better to give the nonworking children another asset or use life insurance to equalize inheritances. Parents need to communicate clearly and hear from their children what their ambitions are.

Q:What are the tax consequences of inheriting a business?

A: The tax consequences can be huge. Owners who fail to minimize their estate taxes in life can inadvertently disinherit their spouse or child. Survivors may be forced to liquidate important assets, including the business or real estate investments, to pay the taxes. Even though estate taxes are being phased out under the 2001 tax cuts, they’ll be back to their pre-2001 level in 2011 unless Congress acts to make the phase-out permanent. Owners who intend to pass along the family business need to implement a tax strategy early with help from their tax adviser or CPA.

Q:How do you value a business if you prefer to sell it?

A: There are three basic methods: value assets, value income, or derive a fair market value for the business by combining the first two methods. Many broker-owners are surprised by the value of their business once they perform the calculations; often it’s worth far less in the open market than they expected. That’s why it’s important to value it before a crisis when you may have to sell.

Q:How do you leave a business well capitalized for the next generation?

A: You create sufficient cash flow and reserves for the business to keep running smoothly. That involves keeping expenses in check, improving sales and profits, and recruiting productive sales staff. It might also mean venturing into ancillary businesses, such as a joint venture on title, mortgage, or home warranty.

Q:Any resources you’d recommend to improve succession?

A: Yes, the advice of a CPA, attorney, and financial planner experienced in succession planning, business valuation, and working with real estate business owners. Also, the Council of Residential Brokerage Managers’ “Financial Planning and Management” course, given June 14–15 in Ft. Meyers, Fla., and Sept. 16–17 in Oregon City, Ore., or available through self-study, helps owners understand business finance. Visit and click Management Education, then Live Courses & Seminars or contact the Council at 800/621-8738.

Source: Rich Arzaga, financial planner, Sagemark Consulting, San Ramon, Calif.

When women run the business

More family business owners are considering a once-ignored pool of successors—wives, daughters, sisters, and other women, says Nan Langowitz, faculty director of the Center for Women’s Leadership at Babson College in Babson Park, Mass. Once in charge, many women make a significant difference on the business, according to a 2003 report,  Women in Family-Owned Businesses, which examined the women’s influence as owners and leaders of family businesses.

The report, sponsored by the MassMutual Financial Group of Massachusetts Mutual Life Insurance Co. and Babson College, revealed the following trends:

  • Female-owned family businesses are 1.7 times more productive than male-owned family companies.
  • Women place greater proportionate emphasis on social responsibility, directing philanthropic focus toward educational and community organization.
  • They experience greater family loyalty and have a 40 percent lower rate of family member attrition.
  • They tend to be more fiscally conservative and their companies carry less debt than male-owned businesses.
Barbara Ballinger

Barbara Ballinger is a freelance writer and the author of several books on real estate, architecture, and remodeling, including The Kitchen Bible: Designing the Perfect Culinary Space (Images Publishing, 2014). Barbara’s most recent book is The Garden Bible: Designing Your Perfect Outdoor Space, co-authored with Michael Glassman (Images, 2015).

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