GRAND RAPIDS — When John Van Tongeren became the owner of Ferris Coffee & Nut Co. in 1985, he did not imagine eventually passing it down within his family.
But since 2018, the company has added six owners within the family, and Van Tongeren and two of his four children are working to plan a transition and implement a management strategy to take over the growing Grand Rapids-based coffee and nut roasting business once he retires.
“I didn’t have any thoughts when I bought it that I would transition it to a family business, but things change, and we’re excited to have it as a family business now,” Van Tongeren told MiBiz.
Van Tongeren and his sons, David Van Tongeren and Mark Van Tongeren, currently are working with a professional adviser to formulate the management structure of Ferris Coffee when John Van Tongeren retires. This will be the first time Ferris is passed down to a younger generation within the family.
According to the Conway Center for Family Business, an Ohio-based nonprofit that provides educational resources to family businesses, many family-owned companies lack a succession plan. Only 30 percent will successfully transition to another family member, and that percentage gets smaller with each generation.
Succession planning on its own can be stressful and complicated for business owners, but adding a family element makes it an even more sensitive process, experts told MiBiz. As Baby Boomers approach retirement age, advisers who help with family business transitions say it’s never too early to start thinking about the future.
Rick Chrisman, CPA and managing shareholder at Grand Rapids-based Hungerford Nichols CPAs & Advisors, said the volume of retirement planning in the next few years emphasizes the need for family-owned businesses to get a jump on succession planning. Chrisman has been in public accounting for 38 years, and works primarily with family-owned businesses.
“Succession planning is certainly a huge issue right now with a lot of these business owners,” he said. “A lot of my clients, they started these businesses from scratch 20, 30 years ago, and now they’re trying to figure out, well, how do I eventually retire?”
Chrisman’s work involves helping answer that question with members of a family business. His bottom line: Plan early. While an executive transition or retirement can be planned, unexpected events such as a disability or death cannot. It’s important to get comfortable talking about succession on a regular basis because it can be a slow process with lots of options, he said.
Chrisman recommends seeking professional help from an adviser or attorney as there are some legal issues associated with passing down the family business.
“There’s tax consequences, there’s cash flow concerns,” he said.
As well, families often find it uncomfortable to talk about legal issues related to a family-owned company. Chris Edgar, an attorney with Grand Rapids-based Miller, Johnson, Snell and Cummiskey PLC, recommends hiring a family business counselor to work through these issues.
“With the family dynamics issue, sometimes I see families get entrenched — feelings are hurt and it damages family relationships,” Edgar said. “They should bring in a family business counselor and work through the business issues with them.”
Edgar has been practicing law since 1975, and has focused on representing closely-held business owners and executives and their families in matters like business and estate planning. If the goal is to keep a business within a family, Edgar recommends practicing open communication.
That’s a sentiment echoed by David Van Tongeren, particularly now as he works with his brother and father on what Ferris Coffee’s management structure should look like in the future.
“Communicating with all family members and ownership is essential, as is working to map out the timeline, figure out roles and responsibilities and proactively work with a schedule to transfer those key relationships from generation one to generation two,” David Van Tongeren said.
Meanwhile, John Van Tongeren feels confident that his sons will help carry on the business as he did, with Ferris Coffee’s customers and employees in mind. As he approaches retirement, he is recognizing his sons’ strengths in different areas that will help define the management structure for the company after his exit.
“Both Mark and David were working at Ferris, and we could see as parents the passion, the work ethic and real desire to be involved,” John Van Tongeren said. “When we posed the question (in 2017), they immediately jumped on the opportunity.”
Some business owners impose stringent requirements for children who are interested in taking over and owning the family business.
One of Edgar’s clients stipulates the children involved in the business need to work outside of the business for a certain number of years. The client also requires a minimum level of education, and that the children need to work in the business for several years without ownership. As they invest their time in the company, their membership in it can be elevated.
“Not everybody does that,” Edgar said. “In this case, because the interest was fairly significant and the family is large, we needed to have criteria like that to make sure those coming to work really understood coming to work.”
Family businesses should begin identifying the next generation of leadership when they are old enough to decide whether they want to be involved in the business, Edgar said. Teenagers and college students are often too young to make the decision, he added. Allowing them to work their way up in the business can be an asset as well.
“I’ve got some businesses where one of the children started at a relatively low level and worked their way through the business to see all aspects of operations,” Edgar said. “Those children were well trained (when they took ownership).”
Despite best intentions, not every family business can or should transfer to a next-generation family member.
“A lot of times what happens is maybe the kid is really good at working in the business, but that doesn’t mean that person would be good at leading the company and managing others,” said Chrisman at Hungerford Nichols.
The family member involved in the business could be part of the transition, but the original owner needs to make sure to surround that person with other leaders to complement their skills, he said.
This part of succession planning can involve some tough conversations. But owners must also think about the health of their businesses and their responsibility to their employees, Chrisman said.
At Ferris Coffee, David Van Tongeren oversees retail development and human resources, while brother Mark Van Tongeren works on business development and marketing. The family’s work with an adviser includes assessing the children’s strengths and where each of them best fits in the company’s management structure.
“Both of them are very strong leaders, but both of them have different personalities and different gifts, so it’s a matter of how does this all fit and how do we divide ownership from management,” John Van Tongeren said.
The Van Tongerens are aiming for a longer transition process as John Van Tongeren has yet to finalize a retirement date. That demonstrates another manner in which family business succession planning is unique: The children or next generation of leaders can still seek advice from the previous owner.
As they work through their transition, the younger Van Tongerens want to maintain the key relationships with vendors and customers forged by their father in his years with the business, something they highlighted as an important step in the process.
“There’s a lot of wisdom and relationship equity with (our father),” said Mark Van Tongeren. “We’re not necessarily in a hurry for the transition. Pragmatically, that time will present itself, but the company has to be in good hands. We have to have the right people, the right leadership, the right financial positioning.”
An asset to the Van Tongeren children is that they are witnessing the succession process, because in the future they need to decide whether to pass down the business to another generation or seek outside ownership. Even so, they say they remain focused first on getting this transition right.
In the end, the Van Tongerens’ formula for a successful transition is simple, even with family dynamics at play.
“Really it comes down to this: Mission, vision and values have to be aligned,” Mark Van Tongeren said. “If those components aren’t aligned among owners or those involved in the transition, things tend to fall apart.”