Succession planning: Difficult but crucial for NM's family businesses - Albuquerque Journal

Succession planning: Difficult but crucial for NM’s family businesses

Brad Christmas lost his mother in a car wreck, his son in a helicopter accident at Fort Hood and his relationship with two of his three sisters in a dispute over the family farm. The 6,200-acre cattle ranch at Wagon Mound had been run by his father since 1948 but, a few years after the elder Christmas died of a heart attack, the siblings began to disagree over what would happen to the business. Eventually, the dispute turned into a lawsuit, which was filed by two of the Christmas sisters against the other two siblings in 2004.

“When we got to the courthouse, that was the end of the family relationship,” said Christmas.

Court records show Christmas eventually settled with his siblings and became the owner of the ranch. His sisters could not be reached for comment.

The Christmas’ story is not uncommon. According to the North Carolina-based Family Business Institute, only 30 percent of family businesses last into the second generation, 12 percent survive into the third, and 3 percent into the fourth generation and beyond. Those that do persist can see their families crumble during the transition from one generation to the next.

The odds of family businesses enduring may be low, but the stakes are high. Ernst & Young estimates that these businesses account for more than two-thirds of all companies around the world and 50 to 80 percent of employment in most countries. New Mexico does not track the number of family businesses in the state, but Craig White, dean of the Anderson School of Management at the University of New Mexico, said keeping such entities strong across multiple generations – or at least multiple owners – is crucial to the health of the state economy.

“We’re not one of those states with a lot of big corporate headquarters, although that’s starting to change,” said White. “Most of our businesses are family businesses. We want our economy to keep going even when owners leave the business for one reason or another.”

Experts agree that the key to a smooth transition between owners is creating a succession plan. The challenge is to create one far in advance of planned events, such as retirement, and hopefully before unexpected ones like a sudden death.

Who wants what

The first step in creating a succession plan is for the owner to take stock of his or her own objectives for the business, said White. Is it a bigger priority to keep the business in the family at all costs, or is the business’ success more important, even if that means handing over ownership to a key employee? How about an exit plan that involves selling the business? Once those goals are made concrete, it’s time to have frank conversations with the other family members.

“It’s important to establish who’s interested in taking over and who’s not,” said White. Not everyone’s opinion needs to be given equal weight, he said, but knowing where each family member’s interest lies is integral to the decision-making process.

Tasha Zonski-Armijo, CFO and co-owner of Jubilation Wine & Spirits in Albuquerque, was the only one of her three siblings interested in taking over the family business. (Jim Thompson/Albuquerque Journal)
Tasha Zonski-Armijo, CFO and co-owner of Jubilation Wine & Spirits in Albuquerque, was the only one of her three siblings interested in taking over the family business. (Jim Thompson/Albuquerque Journal)

At Jubilation Wine & Spirits, a family business that’s been around in Albuquerque in some form for nearly half a century, it’s clear who will take over the day-to-day operations once the original owners retire. Carol Zonski, co-owner of Jubilation along with her husband John and daughter Tasha Zonski-Armijo, said the succession plan she and John came up with was simple: sell the business if none of their three children wanted to take it over, or split up the work between them if they did.

It turns out that Zonski-Armijo was the only one who did.

“One of my earliest memories is being so small and being surrounded by so many enormous bottles,” said Zonski-Armijo. “So being here, running the business, it really feels like home.”

While Carol and John Zonski still come to work every day and provide guidance, Zonski-Armijo already does most of the functions that will be expected of her once she becomes the sole owner.

That includes thinking about the next generation of Jubilation owners. Zonski-Armijo said her two young daughters, ages 9 and 11, appear to be interested in running the family business once she’s ready to pass the torch – or maybe before.

“The other day, one of them said, ‘Mom, if you’re going to fire someone, could I do it?'” she said.

Making it official

Once the owner decides which individuals will be taking over which parts of the business, it’s important to share that plan with the relevant parties, said White. That way, if anything should happen unexpectedly, everyone is aware of the plan going forward.

Laurie Aragon, foreground, began running Albuquerque Duplicator Supply when her father died 2 years ago. In the background from left to right: her uncle and business partner Dave Royster, service manager Les Boyd and Aragon's husband Mark, who also helps with the operation. (Jim Thompson/Albuquerque Journal)
Laurie Aragon, foreground, began running Albuquerque Duplicator Supply when her father died 2 years ago. In the background from left to right: her uncle and business partner Dave Royster, service manager Les Boyd and Aragon’s husband Mark, who also helps with the operation. (Jim Thompson/Albuquerque Journal)

That day came for Laurie Aragon two years ago when her father died unexpectedly on a golfing trip in Sedona. Aragon now runs her father’s business, Albuquerque Duplicator Supply, which sells copy machines and supplies to schools and other customers. She is also a physical education teacher at Montezuma Elementary.

“There was no time for reflection,” said Aragon, recalling her state of mind in the wake of her father’s death. “It was time to work.”

Luckily, Aragon’s father spent years teaching her exactly how he wanted things to operate in his absence. Aragon and her two siblings grew up working in the store, and all have been involved in the business over the years in various capacities. Her uncle Dave Royster has been a partner in the business since 1982; her husband Mark has also helped out over the years.

“Dad would say, ‘Now remember this client likes this type of paper, but not this type,'” said Aragon. “I don’t know if he had a premonition of what would happen to him or what.”

Still, there were unexpected issues that arose, like the fact that Aragon suddenly had to sort through mountains of paperwork her father had kept, including invoices dating back to 1962. And much of his succession plan was informal: Aragon said the business is currently in the estate process and, once it emerges, she and her siblings will officially decide who will take it over.

It’s a question that elicits strong feelings for Aragon. When asked how she feels about having to balance her teaching job with running the family business, tears form in her eyes.

“I have mixed emotions about it, because I love working with kids,” she said. “It’s been a hard couple of years. But we’re a well-established business and we plan to keep going.”

Learning from the past

White said the succession planning process can easily become complicated and one of the best things a family business owner can do is bring professionals into the process: lawyers, business advisers, accountants, even psychologists to help sift through family dynamics.

“In a family business, everything is so intertwined,” said White. “Talking to professionals early on can make a big difference.”

As for Christmas, the rancher, he’s determined to keep things civil between his two surviving sons once he passes on. He said he will give the ranch to both of them in a will that includes a buyout process in case one of them wants to leave the family business. Christmas also runs a heavy equipment business on the side, though he said it’s so small it’s unlikely to be taken over by anyone once he dies.

“When I go away, it’ll just kind of go away, too,” said Christmas.

He’s also using his experience to help other families with the difficulties surrounding succession planning. Through the Parker Center for Family Business, a nonprofit organization housed at the Anderson School of Management, Christmas often speaks at events about the dispute over Christmas Ranch and the lessons he learned in the process. He said he also frequently acts as an unofficial counselor for other family businesses, where his message is typically one of the value of talking through uncomfortable topics before it’s too late.

“Just getting people to communicate can preserve a family,” he said.

He said he finds it rewarding to guide other families through difficult conversations, though it’s a skill he learned while his own was torn apart.

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