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Storeowners Address Ways To Create Wealth And Avoid Inheritance Taxes In Transition |  February 22, 2017 (0 comments)


Scottsdale, AZ—Last week’s edition of The Centurion Newsletter addressed a key issue for family jewelry businesses: how multigenerational family members in the business can communicate effectively to grow the business and avoid the squabbles that can bring it down. The topic was one of two key issues about generational transitions in retail jewelry stores, addressed in a panel discussion at the recent Centurion Scottsdale show.

The panel was moderated by Jeffrey Roseman, CEO of Connecticut’s David Harvey Jewelers, and an adjunct professor at Fairfield University Dolan School Of Business Management Department. Panelists included Jim and Matthew Rosenheim, chairman and president, respectively, of Tiny Jewel Box in Washington, DC; Lauren Kulchinsky Levison, co-president and curator at Mayfair Jewelers with stores on Long Island, NY, Bill and Charlie Nusser, owner and general manager, respectively, of Hands Jewelers in Iowa City, IA; Brian Alter, president of Alter’s Gem Jewelry in Beaumont, TX; and Ronda Daily and Ashley Daily Stegall, owner/CEO and marketing coordinator, respectively, of Bremer Jewelers, with stores in Bloomington and Peoria, IL.

Roseman kicked off the transition topic with an example of the transition from Reginald Jones to Jack Welch, two legendary CEOs of General Electric Corp., who had two very different management styles. Jones was an autocrat and employees didn’t dare ask a question unless they already knew the answer, whereas Welch welcomed questions and challenges.

But when asked when the transition of power at the top of GE began, Welch always said it was the very first day he took office, as it needs to be a long-term process. A sudden change such as the death of an incumbent is a huge challenge to overcome if the transition hasn’t already been in the works, explained Roseman. He asked each jeweler how the leadership transition is taking place in their businesses.

Rosenheim had a dual focus: an appropriate transfer of control but also considering valuation and estate tax. Matthew is the only child in the business, but he has a sister who isn’t involved in it.

“When Matt came into the business I began process of immediately thinking about how I wanted to transfer the value of my business to the next generation just for estate tax purposes but still maintain control till I thought it was a good time to turn that over.  We split stock and I was able to transfer over a period of time. The value of stock I retained was a small percentage but with voting control. 

“All the growth went to B shares the kids owned, so it mitigated the effect of the estate tax but at the same time I held power completely. I could hire and fire and run the business as I saw fit, but that power had a very small amount of material value of company. At such time I felt it appropriate, I transferred voting control over to my son. He had proven to be the appropriate next leader of company,” said Rosenheim. “That said, there was never any real push-pull between the two of us.  While I have no ownership or equity or voting control whatsoever, we operate as partners based on our relationship and respect as family and colleagues. As I said, I never pull out the dad card. It’s never been a conversation, not once. We don’t agree all the time and we have discussions, and sometimes I convince him my way is right and sometimes he convinces me and sometimes we just don’t agree, but we’re never angry. We stay civil. No slammed doors.

“I’ll speak to succession from a leadership perspective,” continued Matt Rosenheim.  “My coming into the business was about earning respect not only from family members but also the team. I did that through hard work and setting the tone and showing commitment. “I related to Charlie’s comment about being promoted from janitor to general manager. I showed everyone I was going to be team player and not the prima-donna son of the owner. You have to set that tone within the organization, have to be the first one in in the morning and the last to leave at night, and show everyone you are serious. By time Dad put control in my hands, I’d already put myself in position to be leader with the staff.”

“How many jewelers does it take to screw in a light bulb?” asked Lauren Kulchinsky Levison. “Answer? It depends when dad’s there,” she laughed.

“Succession plan in our store is interesting,” she continued. “If it were up to my grandfather, he would have retired at 40, my grandmother would be dug up [from the grave] and still working. Dad (Dan Kulchinsky) will never retire. It’s not about succession, he just loves it. My brother and I both love the business but we have very different work styles. I come in later and leave earlier, and my brother comes in on time and leaves late, but we came into the business at different times. I was 29 when I came in and my brother was 27. I had another career first.”

Despite her assertion that her father will never retire, he began creating a succession plan as soon as he was given full rein of the business, she says. Some of the key lessons he taught include never making something you’re passionate about become routine, and that nothing is personal and everything is different. 

“When you become routine, your partner becomes the passion,” said Levison. “My brother is all the numbers, but my father’s succession to me is all the philosophy. He taught me you have to have vision, and with it comes a lot of responsibility.

“You always have to have your family image in mind. You can’t just be who you want to be and forget your family business. You have a responsibility to your business, to your community, and to your charities. Always act responsibly, hang around with responsible people, and keep your image squeaky clean,” she said.

At Alter’s Gem Jewelry in Texas, three generations were involved in three family member buyouts, beginning with buying out his grandfather in the Great Depression.

A later buyout in Alter’s father’s generation “should be a good murder mystery made for TV,” he said. Alter, like his father and brothers, is an attorney and a CPA himself in addition to being a GG. It gives an interesting perspective, he says.

“One thing my father wanted to have in the business is the future of the business belonging to those who work in it.  He made all four kids know estate planning as they did it. We were part of their process and all the kids know who is going to get what—who was going to get the business and the assets divided between the other three siblings.

“Our parents wanted to be there to help resolve conflicts, not to rule from grave. Please don’t rule from grave!” he urged.

“My father also said go to school and get a career to fall back on, because if someone walks in with a $20 million check, ‘I’m going to say see ya!’ You’re welcome to come back, but it has to be by choice, not by default,” he emphasized. 

Even though Alter’s father set everything up and everyone know what was going to happen, Texas is a community property state. Alter’s brother passed away and his sister chose to leave the business, but there still were some estate issues following his mother’s death and what would ultimately make sense for him and his father. He ended up buying out his father in a way that met both his father’s financial needs in life and passed the business to Brian Alter on his death.

“You need to talk to a CPA and attorney and figure what your family needs are. You have to account for things because everyone different, but I beg you not to saddle anyone in the business with someone not in the business if they’re able-bodied!” If they’re not, that’s a different issue, he said.

“I do understand the murder mystery,” laughed Bill Nusser. “I could have murdered my dad sometimes, but he was a great man who did a lot for the business. It didn’t dampen my enthusiasm, but one day he literally said, ‘I’m leaving for six weeks and you can’t get hold of me or your mother, and when we come back we will begin the transition of the business to you.

“When he walked out door I said, ‘I guess I’ll figure out if I’m full of it or not. I had big concerns as I was not really groomed for leadership. Many years of being an active member of the business and not having ownership was a psychological issue for me, so Charlie and I have worked at this.

Do you need ownership to feel ownership? We have not yet begun transition of the business into his control yet but we are beginning very soon and beginning mutually. And I’m so in agreement [with Brian Alter] that you don’t let people who don’t want to be involved be involved. I’ve often thought about how to thank or reward my sister for being part of the business for years without having ownership. I have to be fair to Charlie, but we have to be in agreement on it.

When I first started, I knew it all and I wanted to be owner in the first week of course,” admitted Charlie Nusser. “So I went away and learned something. Any job I had, even at a carwash, I treated like our family store. I said you can make me owner but not change what we do. It goes back to values. It will happen when it happens but I’m more interested in keeping doing what we’re doing.”

Ronda Daily reminded the audience of Centurion 2016, when Marcus Lemonis of The Profit was keynote speaker. “If you remember last year, Ashley and I and another employee stood before Marcus Lemonis. We kept in touch. 

“My husband left the business and went back to the television business.  We miss him as he could sell like no other, but it started the conversation about transition.  We have begun talking about being an owner versus working in the business.  You can own a business without working in it.  At end of day it’s what really is your passion and really what you want to/

In our case, this is really what I want to do. Did I want to take over business?  I did—one day you’re the owner’s wife and the next day you’re the partner (Daily’s first husband passed away in 1995.)  So you’re in the business but not controlling it, so having that background I have to think about that not only for my child but for my employees, and I want what’s best for them as well. I’m not ready to leave yet and I don’t plan on dropping dead tomorrow, so our job is to continue the conversation and what’s best for the company and what’s best for Ashley and her family, and what’s best for my husband and me.

“When I think about our business, it’s been in the family longer than I have,” says Stegall. “So like Lauren said, when you are out in the community, what you do and say represents that brand. The business is like an older sibling [to me].  I will work to be the best candidate to own the company, if I’m not that person and that person is out there I will let them do it if it’s best for the business. As long as you stay true to who you are and your values and take care of people, you’ll be ok.”

Levison chimed in, “Being the only person with an equal partner, my brother, it’s easy if you have clear descriptions of your job and you don’t have to have permission from the other to do your job.

“The good thing about a partner is that arguing with someone makes really great things happen because it leads to elaboration and collaboration, but if you have to constantly go back to one another and check ‘is this ok, can I do this,’ and that makes someone feel inferior, it leads to demise.”

One of the challenges of a family business is protecting the nest egg of the owners. How do they get their investment out of the business without choking the business?

Jim Rosenheim answered first, admitting he had a lucky break in getting his business valued in an awful year, which worked to advantage. “I did through a number of different vehicles. I can’t speak to tax and legal aspects, as I had counsel doing it, but I split the stock with different value and voting [rights].”

But his most important piece of advice was diversify. “I never believe in having all assets tied up in the business. I have friends where everything they have is tied up in business. Over the years I used assets to accumulate wealth outside the business, so I don’t really need the business. It worked out.”

Alter, too, emphasized the importance of accumulating wealth outside the business, and used his expertise as CPA and attorney to address some other common issues.

“Retained earnings is not cash,” he emphasized. “It’s profits earned over a period of time, though it’s treated as cash when you die. When dealing with family members and looking at this year over years, it’s not cash flow and you have to understand the difference. Don’t confuse retained earnings and cash. Trying to pull retained earnings out of business is like pulling equity out of house.

“When we sat down to plan a transition when my parents were living, the key was to provide a standard of living for the outgoing generation as well as the incoming.  Luckily Dad used the business to accumulate wealth outside business.

There were six years from transition to Dad’s death.  We were able to legally move the asset out of his estate.”

Lauren Kulchinskly Levison asked, “How important is the family in marketing the family business? If you look at selling the business tomorrow and take your family out of the sale, how much is the business worth?”

The answer varied. Ashley Daily Stegall said there are certain places in the country where the family message just doesn’t resonate. “Lots of consumers don’t care that you are a family business,” she said.  

Despite being a fourth-generation owner, Bill Nusser said that is true for Hands Jewelers. We are in a university town with a lot of turnover, and people don’t care if we’re 160 years old. I’m an artifact and Charlie is the future, and as long as we are delivering our message, it doesn’t matter [that we’re family].

“Lori and I have four kids but none yet are interested in the business,” said Brian Alter. “If none of our kids come into business, we either close, sell, or I do what I never want anyone to do and be nonparticipating owner. My job now is to work myself out of a job if [the business] can’t survive without me. If the owner dies and the business can’t survive, you don’t have a business, you have a job.

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