By ANDREW N. KARLEN, ESQ.

Beyond the daily rigors of staying on top of the bottom line, closely held and family-run businesses today face an even greater challenge: that of mere survival so that the next generation can own and manage the operations. According to the United States Small Business Administration, nine out of ten businesses in our country are family owned and controlled, but the odds of making the transition from the founding generation to the next are slim: only three of ten actually do. Ownership succession to a third generation is even more unlikely: less than two of ten will endure.

To avoid becoming a casualty of these statistics, the senior generation must come to grips with passing on the assets and management control to the next generation. How to pass the torch to family members is something one local businessman thought about for years based on his own painful experiences.

Ben Ciccone, the 75-year-old chairman of a successful construction contracting firm in Poughkeepsie, experienced first hand what happens when a business owner becomes paralyzed by what can be an overwhelming array of emotional, family and business issues that relate to passing the torch. His father, who founded the business in 1932, failed to complete the assignment of ownership and power to the next--Mr. Ciccone's--generation. This inaction eventually cost Mr. Ciccone and his brother dearly.

"When my father was alive and still very active in the business, his accountant and attorney had papers drawn up, but he wouldn't sign them. Maybe it was because he was stubborn, or maybe it was the prospect of facing his own retirement that held him back. I remember hearing him say, `I can't let go.' But because he wouldn't sign the papers, we lost an enormous opportunity to take the tax breaks we were entitled to. We had to pay thousands and thousands of dollars...twice. My dad was good enough to leave everything to my mother. When she died in 1981 we had to pay estate tax again."

Mr. Ciccone, a self-made businessman, now the proud father of two sons, a daughter and five grandchildren, learned from his father's mistakes. "I was determined to transfer ownership to my sons because we had felt the anguish and paid the price for not doing it," said Mr. Ciccone. "I hope that others can learn from this experience. If you want to pass on a legacy and future opportunity to the generation behind you, at some point you've simply got to let go."

Even for Mr. Ciccone, the transfer of the company's assets and power to his sons was trying. "If I didn't do it and something happened to me, as sure as I'm talking to you now, it would have cost my kids a bundle," he admitted. "They would be forced to sell the business to pay estate tax to the feds and state. But it still took at least three years for the transition to be final--and I was in favor of it. It's difficult, and I can now see why so many owners don't make it."

With the company now in the capable hands of his sons, Brandon who is 42 and Ben "JR" who is 36, Mr. Ciccone is now able to focus on lofty though no-less important matters such as labor relations and funding programs as the association chairman of the Construction Industry Council of Westchester and Hudson Valley, Inc., in Tarrytown.

Experts universally recommend succession planning. But it is hard for business owners to enter the world of buy-sell agreements, insurance and training their successors, when they are stymied by any number of obstacles: loss of the ego they equate with being the boss; monetary insecurities; the prospect of having to choose one of their children as the next business leader; uncertainty about the next generation's qualifications, to name a few. One problem is that these businessmen are accustomed to making objective business decisions about their businesses. But, although experts say that the business should be viewed apart from the family, these are decisions of a different ilk. These decisions require them to deal with their own mortality, the sensibilities of those they love the most, and the future of the business they have spent their lifetime building.

Then, there are the not so silent partners in all of our businesses--the federal and state tax collectors, who will exact their toll on the transfer of the business. The business must be transferred in a way that the transfer taxes won't strangle the business or the transferring or surviving family members. Gerald Mirra of Corporate Plans Associates of Armonk, puts it this way. "The federal estate tax for large estates is essentially 50 percent of what you own. If I own the World Trade Center, I can leave it to my spouse with no federal estate tax (due to the unlimited marital deduction). But when mom dies the government would take one of those Twin Towers away."

It is hard to generalize, because each family and each family business is unique. But, experts agree that passing the torch in a family business should be an intergenerational process that begins as early as possible, with the senior generation grasping the need and becoming secure with the concept.

"Succession options should be a topic of regular family business discussion from the outset--even if the kids are very young," said Marlin Potash, Ed.D, a psychological business consultant based in New York City. "When everyone in the family considers if, when, and how to pass it on as an integral part of running the family business, logjams when owners die or 40-year-old 'children' chomp at the bit to take over can be avoided."

Dr. Potash, who combines legal, accounting and psychological insight in her work with families and their businesses, stresses that "facing differences can lead to creative solutions to save the family business, even late in the game."

She added, "My experience with family firms shows that the family influences the business and the business influences the family over the lifespan of each. It's never too late to call a family meeting to address these ongoing concerns."

At first blush, many reject the suggestion of a team approach as excessive. But that excessiveness can quickly become necessity when one reflects on the confluence of family, business, financial, tax, legal and emotional issues involved in passing the torch.

Note: This is the second of several articles on business succession. Next month's article will discuss how some businesses have been successfully transferred to employees.