Family friction can kill a successful business

By David W. Hill
dhill@modbee.com

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For more than 100 years, Modesto Steam Laundry operated in Modesto, surviving the Great Depression, two world wars and numerous technological changes. It was even getting by in the current economic crisis.

Despite its success, the business is closing at the end of the month. Its McHenry Avenue and Ripon outlets will shut first, followed by the original laundry at 1201 Eighth St. in downtown Modesto.

For decades it has been owned by the Simidian family. Brothers Harold and Ed Simidian worked side by side for years to keep the laundry going through good times and bad. When they died, the business passed on to their descendants.

But after numerous disputes between the main family factions, a court-appointed receiver ordered the business liquidated. That decision marks a sad end to a local business with a proud history that closely followed the growth and development of Modesto. It also leaves 19 employees out of work in the region's worst employment climate in more than a decade.

Unfortunately, the fate of Modesto Steam Laundry can befall any family-owned business and too often does. In the Northern San Joaquin Valley privately held family-owned businesses, from mom-and-pop shops to worldwide operations, are far more common than publicly traded companies. That makes the valley ground zero for the kind of family friction that can kill even the most successful business.

Attorney Robert Garcia of the Modesto law firm of Damrell, Nelson, Schrimp, Pallios, Pacher & Silva represented members of the Simidian family who live out of state. He wouldn't comment about specifics of the case but did acknowledge that the key issue in such disputes is often whether the business is being run "in the best interest of all partners."

Garcia said family-owned businesses too often don't put a legal framework in place that spells out the responsibilities of all the parties involved and protects everyone's interests.

As a result, there are misunderstandings, disagreements, hurt feelings and confusion that can drag any business under.

When a business is passed down from one generation to the next, Garcia said, it's critical that the family members have a unified vision. Without clearly defined leadership roles, business objectives and administrative processes that everyone buys into, even members of a tightknit family may feel they're being left out.

For those who can't buy into what the rest of the family wants, the best move may be to buy them out. But even that becomes problematic if there's not some detailed process for doing so, particularly a formula for determining the value of their interest in the business. If they feel shortchanged, or disrespected, buying out dissident family members likely is a nonstarter.

That's why it's so important for family businesses of all sizes to invest the time and effort into planning for the future, said Louis Friedman, a partner in the Modesto law firm of Curtis & Arata.

Friedman, who specializes in estate planning and succession planning as well as finance and business organization law, was instrumental in the development of the Stanislaus Economic Development and Workforce Alliance business forums, which often focus on family business issues. It's one more example of how important family businesses are to the valley.

For people who have spent most of their lives building up a business, Friedman said, it's going to take some time to work through the complexities of the options they have, determine the one that best fits their desires and then put it into place. He said those can sometimes be painful, difficult discussions, but they are absolutely essential.

Those talks should start sooner rather than later so the owner's wishes are in place as soon as possible and will be carried out no matter what happens. The future, after all, is promised to no one.

Friedman and Garcia agree that it's vital that family business owners put together a team of professionals to help them implement their plans without getting killed by taxes. This typically includes a lawyer, accountant, business adviser and insurance expert.

"This has to be an integrated team, so they are all working from the same playbook," Friedman said. Otherwise, he added, business owners may get conflicting advice and their vision for the future could be compromised or, worse, not realized.

"Virtually every family business that goes through succession planning thinks they are the only ones dealing with these issues," Friedman said. "But they're not. Talking to other family business owners who have been through it is a valuable resource and reassures them these problems aren't unique."

Of course, lining up all these professionals and dealing with all these issues is going to take time and money. For businesses that have been around for years, maybe even more than a century, the price might seem too high.

But the price of not doing it is much higher. Just ask the people at Modesto Steam Laundry.

Bee business editor David W. Hill can be reached at dhill@modbee.com or 578-2336.