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Turnaround Performance Specialist Murak & Associates, LLC

[lAMILY businesses need to objec.l-' tively evaluate their key financial metrics and the person who is responsible for them.

Frequently, family owners' interpretations of a controller's responsibilities will not be found in any textbook. Among the common owner attitudes toward financial control are:

1. Back off - "It's my company and my checkbook."

2. Honey Do or Gene Pool - "Who else can you trust?"

3. Undersized - "Just give my accountant the shoeboxes."

4. Survivor - "They have been here since Day One."

5. Defector - "They must be good; they used to work for my accountant."

6. Teflon@ - "They don't have a clue what it takes to run this business."

7. Big League - "They got tired of working for the big corporation."

8. Tag Team - "If one is good, two are better."

9. Jumping Ship - "I knew he or she was the problem."

Let's take a closer look.

Back off There is no question about who is in control here. This family business owner tries to do it all, including keeping the books. No one else is trusted with the financial information, sometimes including the outside accountant.

Under this style of control, lenders are way down the food chain. Typically, calls from a lender are put off, or they are not returned at all. It is a case of "my way or the highway," even if "my way" is going off the edge of a cliff.

Honey Do or Gene Pool" This business owner often shrugs offfinancial control with. "I don't have time for that stuff." Such owners cite numerous examples of why they can only trust their spouse, son or daughter. This type of controller's education or outside experience usually does not qualify them for the position.

It is important to watch for the "lucky gene pool"-the son or daughter fresh out of school with no outside experience. If the son or daughter attempts to improve financial controls in the company, he or she risks straining their relationship with the parent running the business, both at home as well as the office. All too often, members of the lucky gene Pool can be swayed by the promise of another perk from Dad or Mom.

Undersized. Family businesses often grow their financial control titles faster than the knowledge or experience of the person in the job merits. When family businesses experience rapid growth, business systems and manager skill sets often lag behind.

At one client's company, the controller was asked for a cash-flow report and responded, "What's that?" At another company, the vice president of finance wrote payroll checks in longhand.

Survivor. Owners often have a confidant who is not a family member at the business. Typically, this employee joined the company shortly after the business got going. The confidant has been there through the ups and downs, and the owner has faith in the person. "They pulled me through before."

The confidant typically has worn many hats. Even when the business is in a crisis, the owner is very reluctant to break this bond. "After all, they are part of the family," the owner might say. "The banker is used to working with them." Once again, individuals who fit this profile often have titles and compensation that exceed their capability.

Defector. This scenario arises when a member of the family business' accounting firm has come to know the family business. A working relationship develops between the family business owner and the outside accountant.

This comfort level leads the family to disclose more information to this person than to other internal or external contacts. As a result. the familv hires the accountant as a controller.

Sometimes this situation works out well. Other times, this may be their first move away from public accounting and they lack hands-on business experience in managerial accounting, such as costing. An intervention strategy, coupled with coaching for such a controller, can often yield significant benefits.

Teflon@. It is not uncommon, when a family business is in need of a turnaround, to find an owner who does not understand how to read financial reports and act on them. The "Teflon@" here refers to the owner. "I give the controller anything they ask for, and I get back all these reports. What good are they?"

Although the controller may have the right skills, knowledge and ability, the owner washes his/her hands of any accountability and lets the controller take the heat.

A clear understanding of the owner's own specific strengths and weaknesses is essential to providing the necessary direction. Establishing clear responsibilities for the owner and the controller, and holding them accountable for their actions. is verv important.

Big League. In this scenario, the controller came to work for the family business with a wealth of knowledge and experience from his/her tenure at a major corporation. This type of controller is usually brought on board during a stage of significant growth, when a well-intentioned owner sets out to "professionalize" the business. This situation can sour if the controller has difficulty making the transition to a smaller organization, which typically has significantly fewer resources.

Tag Team, This structure is often an outgrowth of the Big League scenario. When the controller from the big corporation is promoted to vice president of finance at the family business, a new controller is hired. This may seem logical, but if this new structure is implemented prematurely, the family business may be unable to carry the added financial burden.

Jumping Ship. "How can my controller wind up with such a great job at another company when we have so much to offer?" a genuinely bewildered owner may ask.

What this business owner fails to understand are the consequences of withholding information from the controller or pushing him or her into questionable accounting practices.

Faced with such a situation, a good controller will look for employment elsewhere, and often lands a better job. The owner often blames the inability of the departing controller. Opportunities to interview departing employees should not be overlooked while digging into the root cause.

Taking Gontrol

Successful family businesses may encounter other scenarios as well, but they work through them. They succeed because they recognized the problem and corrected it to avoid a crisis.

A central question for the family business owner should be: Is the person qualified for the controller's position? Good communication and people skills, along with a high degree of technical skill, are crucial to the financial management of a family business.

Regardless of the scenario, who is really in control? Who has all the facts, and knows how to use them to develop a detailed plan of action for the future? Are family and business issues kept separate?

To achieve this, family councils or advisory boards can be used as forums to educate the family about the power of shared information and proper financial control.

- Gerry Murak, MBA, PHR, of Murak & Associates, LLC, is a consultant, executive coach, speaker and author of the upcoming book Straight Line into the Turn (www.murak.com).

By Carla Waldemar

rnHE Louis J. Grasmick Lumber

Co.. Inc. was founded in the '50s to serve Baltimore's maritime industry. But in 1973 the concept of containerization sailed in and overnight eliminated the call for the company's specialty, rough blocking.

Grant Grasmick, fresh from college, stepped into the family business just about then. Rather than beat a swift retreat and not yet burdened with the mental freight of simply serving shipping lines, he steered his thoughts full steam ahead: "Who else could use this stuff?" The answer-industrial and manufacturing plants-carried Grasmick Lumber to the next stage of prosperity. Diversification saved the day and became the outfit's stock in trade.

It drove the push to what's become its present forte, multi-family housing. The idea came to Grant when he bumped into a buddy whose father was building 60 units. "We'd never done that before," he looks back. "We could continue with more of the sameold and not learn anything new"-or bid the job. Grasmick won the contract, and a substantial new niche was born. Eyes opened to opportunity, the company has added custom housing, bridge and highway building, onsite pallet and remanufacturing operations, and a significant commercial base. The most recent "Well, why not?" is cabinetry.

True to form, "We stumbled into it," Grant confesses. "A Pennsylvania outfit we dealt with let us know they were also 'the biggest kitchen distributor in the world.' They asked us to consider taking on some cabinet business-'Come up to see us in York and we'll get you excited. We have the best distribution facilities, and you have the best relationships,' they told us. Word got out fast. Less than 24 hours after our visit, I got a call from someone who'd just left a job with GP. 'If you're serious [about the new venturel, I'd like to get involved.'

"We'd bought the property next to us a year earlier for extra storage," Grant continues the chronicle. "Lo and behold, it came with a building. We retrofitted it as a designers' showroom to build on relationships with our builders who'd told us, 'You already supply us with everything else; if you had a showroom, we'd give you that cabinet business, too.' We jumped in with both feet, to stay ahead of the market."

The pallet-manufacturing idea sprang from the same competitive streak. "When I joined the company, just out of school," he says, "there were a dozen really decent competitors in Baltimore. By adding niches, we won the war of attrition. Now, most of the others are gone-so, today we're the leader. Our rePutation speaks for itself."

It's built on partnering. "Our alliances with both suppliers and customers are vital to our success," he continues. "We deal with everybody from owners and developers to architects, general contractors and subs.

"We're able to help them, too. If there are projects they've earmarked as potential opportunities and we have relationships with the owners, we'll facilitate an opportunity to bid. We refer business-and people, too. I'll hear, 'Listen: I'm looking for a job' from someone and invariablY we know of an opening. We're alwaYs doing that kind of thing-marriagemaking, networking. This generates loyalty and long-term commitments to us. Lots of repeat business. And much of it comes about when peoPle leave a company and go to work somewhere else, and remember the jobs we did previously-our service. pricing, quality. So we get calls...."

"There were a dozen really decent competitors. BY adding niches, we won the war of attrition."

From Washington, an hour away. From Chicago, for heaven's sake. Grasmick has starred as the supplier of choice not only to major Baltimore institutions like the National Aquarium, World Trade Center and Oriole Park, but also D.C.'s Dulles International Airport, Smithsonian's National Museum of Natural History and MCI Sports Arena, the Chicago Stadium, and the list goes on. "We supplied the scaffolding for the Washington Monument-an extraordinary amount. We get lots of federal government work," he adds. On those mammoth projects, the comPa- dircct-ship. never touchin,g the materials in Baltirnclre. and thus be "extraordinarily competitive. Or rve can mix and rnatch materials on a truck; thcn the ficight becomes a consideration, but rve add it into the bid."

"lt's rclationships that grorv our business." he explains. "That's the other thing r,ve do that goes rvcll bcyond just pricing, especially for the multi-family and commercial jobs rvhere guys have to plan ahead-buy property. and the build-out can take I 2 months. Our business is sub.ject to extremely volatile pricing, so l2 months later. he's at the lvhirn of 1hc marketplace and finds he's spent lvay above budget.

"We thought. in order to gct morc business, rvhat could ive do'l So rvc initiated price protection for an extended pcriod of tirne: 'lf you _rive us the business. ivc'll take the risk. lf prices go dorvn. rve rvin: if they -uct up. you do. You can slccp at night and rve'll stay up in thc cvenings.' This idea has really exploded our business." (lt hclps if yclu have the volume to ship dircct and cut your freight costs," he counsels. "This isn't a high-margin business very much a volumc business.")

Trade Secrets: Loyalty By Design

Staff turnover is almost nil. thanks in part to Crasmick's ag-eressive profit-sharing plan.

"We'vc had it for 40 years, and it's been funded every year for 40 years," says Grant Grasmick with a justifiable touch of pride. "Not like your 40 l-k, it's funded totally by lhe employer a nice retirement package. There's also a bonus arrangement every year."

The boss gilds the lily: "I'm not big on staff meetings; instead we create an overall philosophy that people understand, and that's based on integrity."

Word of that kind of partncrin-e spreads faster than thc latest Washington scandal. "We get lots of calls to look at blucprints, but that takes too rnuch timc," Grant dcnturs. "lnstead. rvc rely on our ref'erral business: it's so significant."

DOMESTIC SALES: Jerry Long, Michael Parrella, Bruce Keith, Janet Pimentel, Pete Ulloa, George Parden, Vince Galloway, Steve Batick.

INTERNATIONAL SALES: Nestor Pimentel. Oscar Portillo.

R:rlrrrrs

Builders Choice, Grants Pass, Or., has been opened by Jim Riddle, after closing his father's longtime business, AWS Doors, Windows & Cabinets', the new firm specializes in cabinets, countertops and garage doors

Boker Lumber, Durango, Co., closed last month after 26 years

Ace Hardware,Laurel, Mt., has been opened by Dean Rankin

Orchard Supply Hardware is ready to break ground on a 45,000sq. ft. store in Fresno, Ca. ...

Keith Brown Building Materia/s, Salem, Or., suffered significant damage from a four-alarm blaze June 291, the "suspicious" fire is believed to have started at a pile of pallets outside the building...

Kolln Ace Hardware, Pleasanton, Ca., has closed

San Diego Hardware Co. plans to leave its current ll2-year-old location in downtown San Diego, Ca., by the end of the year and is looking to relocate to a more central location

Picks Building Materials, West Covina, Ca., lost $55,000 in lumber in a Jrne 24 fire

Osborne Lumber Ca.. Newark. Ca., dismissed a I7-year employee after police apprehended the man and an accomplice as they were leaving the yard at night with a truck of lumber store in Lancaster, Ca., expected to open at the end of the year, and held a public meeting to discuss opening a s.tore on 12 acres in Longview, Wa.

Lowe's is constructing a 143,000-sq. ft. store with a 27,OOOsq. ft. garden center on 22 acres in Bend, Or., expected to open this fall; is building a new 135,000-sq. ft. store to be completed this fall in Portland, Or.; has broken ground on a $15 million, 180,000-sq. ft.

Home Depot opened new stores May 13 in Chula Vista (Otay Ranch), Ca., and May 27 in Ukiah, Ca. (Chris Kegerreis, mgr.)

Home Depot broke ground in Delano, Ca., and on 11 acres in Hilo, Hi.; anticipates a fall opening for a 118,000-sq. ft. unit in The Dalles, Or.; has been approached by developers to anchor a 1 million-sq. ft. project in Portland, Or.; is in talks to add stores in Seal Beach, El Cajon and Yucaipa, Ca., and received approval to build in north Corvallis, Or.; Ponderay, Id., and at Midtown Plaza. Los Angeles, Ca.

Home Depot created a "business development operation" to expand its operations in China, headed by newly named president of Home Depot China, Bill Patterson

If norrslr r ns/ llhtt u rltru n :ns Honsador Lumber, Honolulu, Hi., agreed to be acquired by investment firm Key Principal Partners; the deal is set to close Aug. 30 ...

McF arland Cascade, Tacoma, Wa., has acquired the composite lumber business of Xtendex, Barrie, Ontario, Canada ...

TNT Lumber Co. relocated its office from Cathedral City, Ca., to Palm Desert, Ca.

Dellen Waod Products Inc., Spokane, Wa., filed for Chapter 11 bankruptcy protection

Western Woods, Chico, Ca., added 55,000 sq. ft. of warehouse space for panels and is now distrib- uting a full range of colors, sizes and lengths of Boardwalk's new wood grained composite deck

All-Coast Forest Products, Inc., Chino, Ca., recently completed a major upgrade to the setworks and line bar ofits 6' bandmill to improve capacity, quality and accuracy...

Coast Wood Preserving Co., Ukiah, Ca., is adding borates this month ...

Burke Industries, San Jose, Ca., has acquired Endura Rubber Flooring from The Biltrite Corp., Waltham, Ma.; Dan Kelly is now v.p. of Burke's Endura Rubber Flooring division

Todd Pipe & Supply, Las Vegas, Nv., has been acquired by Hughes Supply, Orlando, Fl.; Todd has eight locations in Southern California and one in Las Vegas

Owens Corning will open a foam insulation manufacturing plant in Gresham, Or., in 2005

Doman Industries. Duncan, B.C., received approval from creditors to transfer the company assets to newly-incorporated companies Lumberco and Pulpco

Weyerhaeuser Co. donated $50,000 to the Deschutes Basin Land Trust for its Metolius Preserve in Central Oregon

Anniversaries: Hardware Hawaii Ace, Kailua, Hi., 50th Long Bros. Building Supply, Woodburn, Or.. 3Oth ... Waldron Forest Products. Fair Oaks, Ca., 28th

Housing starts in May (latest figures) slipped 0.7Vo to a seasonally adjusted annual rate of L967 million ... single family starts rose 1.4Vo to a 1.64 million pace per-

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