ol? The eontr$ililer and the fanrilil[y business

By Gerry Murak Turnaround Performance Spec ial ist Murak & Associates, LLC

[tnVtlV 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: l. 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 - "lf one is good, two are better."

9. Jumping Ship - "l 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 6'my way" is going off the edge of a cliff.

Honey Do or Gene Pool. This business owner often shrugs off financial control with, "l 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 family 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 understandins 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 oJ the upcoming boaft Straight Line into the Turn ( www.murak.com).

By Carla Waldemar

THE Louis J. Grasmick Lumber

I 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 con- tract, 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 feder- al government work," he adds. On those mammoth projects, the company can direct-ship, never touching the materials in Baltimore, and thus be "extraordinarily competitive. Or we can mix and match materials on a truck; then the freight becomes a consideration, but we add it into the bid."

"It's relationships that grow our business," he explains. "That's the other thing we do that goes well beyond just pricing, especially for the multi-family and commercial jobs where guys have to plan ahead-buy property, and the build-out cantake 12 months. Our business is subject to extremely volatile pricing, so 12 months later, he's at the whim of the marketplace and finds he's spent way above budget.

"We thought, in order to get more business, what could we do? So we initiated price protection for an extended period of time: 'If you give us the business, we'll take the risk. If prices go down, we win; if they go up, you do. You can sleep at night and we'll stay up in the evenings.' This idea has really exploded our business." (It helps if you have the volume to ship direct and cut your freight costs," he counsels. "This isn't a high-margin business-very much a volume business.")

Word of that kind of partnering spreads faster than the latest Washington scandal. "We get lots of calls to look at blueprints, but that takes too much time," Grant demurs. "Instead, we rely on our referral business; it's so significant."

- A former award-winning LBM trade magazine editor, Carla Waldemar writes frequently on the building material industry. C o ntac t he r at cwaldemar @ mn.rr.c om.

Trade Secrets: Loyalty By Design

Staff turnover is almost nil, thanks in part to Grasmick's aggressive profit-sharing plan.

"We've 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 401-k, it's funded totally by the 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."

Rrrlrr:rs

Hansen Lumber Co. and Hansen's Depot Hardware, Mn., were sold June I by Dave Hansen to Erik Line and renamed Line's Building Center

Alexander Lumber Co., Fort Worth. Tx.. has closed and auctioned off its remaining inventory and equipment

Marvin's Building Materials and Home Centers will open a new 38,500-sq. ft. store with garden center and drive-through lumberyard in Valley, Al., in the fall ...

Carter Lumber Co. will relocate its Muncie, In., yard to the former Furrows Lumber site

Pierce-Grassi Lumber Co., Crossett, Ar., auctioned off its site, equipment and inventory May 7

Bryan True Value Hardware, Titusville, Pa., has reopened following its sale from Ida Diem to Don Miller, owner of Miller's True Value Hardware, New Wilmington, Pa.; co-mgrs. Vicky Ruppersburg and Kent Johnson have rejoined the business

Lundberg's True Value, Muskegon, Mi., is closing late this month after nearly 75 years, allowing third-generation owner Chad Lundberg to devote more time to his storage business ...

Modern Builders & Supply Co., Wausau, Wi., was destroyed by a June 19 fire; cause is yet to be determined ...

Fusek's True Value Hardware has been opened by Steve and Sue Fusek in a 10,000-sq. ft. building in downtown Indianapolis, In. ...

West Branch Benjamin Moore Paint Supply, West Branch, Mi., has relocated to the nearbv site recently vacated by Scott'i True Value Hardware Store site in Charlotte, N.C., and hired Butler Learning Systems, Dayton, Oh., to provide employee sales training at more than 50 locations nationwide ...

84 Lumber Co. opens a new yard this month in Spartanburg, S.C.; paid $1.9 million for the 13acre former McClure Lumber Co.

Menards will build a $58 million DC and truss plant in Williams County, Oh., to support expansion in northwest Ohio and southeast Michigan; up to five stores in metro Toledo are expected ...

Home Depot opened new stores May 27 in St. Cloud, Fl., and Orange, Tx., and May 6 in Montville. N.J.

Home Depot has selected a site in Cabot, Ar.; withdrew efforts to build a store in Talbot, Md.; agreed to buy a Kmart in New Milford, Ct., and created a "business development operation" to expand its operations in China, headed by newly named president of Home Depot China, Bill Patterson

Lowe's Cos. opened a 116,000sq. ft. store June 18 in Opelousas, La., and a 94,000-sq. ft. unit June 11 in Millington, Tn. the chain is building a 210,000-sq. ft. door manufacturing plant in Janesville, Wi., expected to begin production in Sept. and shipping in Oct. ...

Lowe 's is eyeing a site in McAlester, Ok.; broke ground on a 94,000-sq. ft. store with 27,000-sq. ft. garden center in Palatka, Fl., and also began construction in Milford, Ma.; Moultrie, Ga.; Clarksville and Lawrenceburg, In.; Somerset, Ia.; Big Rapids, Mi.; Lebanon, Mo.; Orchard Park, N.Y.; Somerset, Pa., and Spartanburg, S.C. Lowe's Pensacola. Fl.. store was evacuated after an employee spotted an abandoned suitcase in the parking lot and called police; the bomb squad deemed the suitcase harmless

Smith & Richards Lumber Co., Bridgeton, N.J., had more than $7,000 worth of lumber stolen late at night May 22

Lumber Liquidators, Colonial Heights. Va.. paid $8 million for a vacated 306,000-sq. ft. John Deere site near Williamsburg, Va., to become its new Hq. lYror rslrr n s/ffhn umtrun r ns

M.G. Building Materials, San Antonio, Tx., is building a 78,000sq. ft. truss plant on l0 acres in Southwest San Antonio; general mgr. Staton Douthit, staff engineer Tag Simler

Mauk Midwest Forest Products, Lansing, Mi., has been purchased by Lake States Lumber, Aitkin, Mn. ...

Martco Limited Partnership, Alexandria, La., is evaluating sites in Mississippi, Louisiana, and East Texas to build a new pine OSB plant and a high-volume, small-log pine sawmill ...

Holbrook Lumber, Albany, N.Y., is doubling its current capacity by adding a 40,000-sq. ft. warehouse and an acre of land; its four locations serve New York and New England

Forest Products. lnc. has relocated its main office from Statesville, N.C., to Conover, N.C.; the company has lumber inventory at two yards in the Hickory, N.C., area and moved to be closer to its inventory and customer base

Georgia-Pacific is restarting its Sterling, Ga., softwood lumber mill, shut down since November 2000...

Lyons Falls Pulp & Paper Inc., Lyons Falls, N.Y., was purchased by Michael R., Robert P., and Ronald J. Johnson. owners of Johnson Lumber Co., Denmark, N.Y., for $220,000; Lyons Falls shut down its mill in 2001 and filed for Chapter 7 bankruptcy in 2002...

Surs Group LLC got approval to build a $60 million lumber mill in Sapling Township, Me.

Timber Creek Resource, Milwaukee. Wi.. has been formed by the merger of Oak Creek Wood Products and. Larkin Lumber and Packaging...

Housing starts in May (latest figures) slipped O.7Vo to a seasonally adjusted annual rate of 1.967

(Please turn to page 41)

Listings are oJten submitted months in advance. Always verifi dates and locations with sponsor before making pktns tu aftend.

Furv

Construction Suppliers' Association - July 8-11, summer management conference, Callaway Gardens Resort, Pine Mountain, Ga.; (7'70) 751-6373.

Mississippi Lumber Manufacturers Association - July 8-11, annual convention & trade show, Grand Casino Hotel, Biloxi. Ms.;(601) 982-1131.

Oklahoma Lumbermen's Assn. - July 9-11, Summer Fling, Quartz Mountain Resort, Lone Wolf, Ok.; (405) 840-1771.

National Retail Hardware Association - July 12-14, convention & annual meeting, Semiahmoo Resort, Blaine,Wa.; (317) 29O0338.

Western Red Cedar Lumber Association - July 14-17, annual meeting, Whistler, B.C.; (604) 684-0266.

Illinois Lumber & Material Dealers Association - July 14, northern outing, Oak Club of Genoa, Genoa, Il.; July 21, western outing, Gibson Woods, Monmouth, Il.; (800) 252-8641.

American Furniture Manufacturers Association - Juty 15-16, board meeting, Marriott Resort at Grande Dunes, Myrtle Beach, S.C.; (336) 884-5000.

House-Hasson Hardware Co. - July 16-18, market, Knoxville Convention Center, Knoxville, Tn.; (865) 525-0471.

Appalachian Hardwood Manufacturers, Inc. - July 18-20, summer family conference, The Grove Park Inn, Asheville, N.C.: (336) 885-8315.

North American Wholesale Lumber Association - July 18-21, wood marketing seminar, Moscow, Id.; (800) 52'7-8258.

National Hardwood Lumber Association - Jruily 20-23,lumber grading short course, McKeever Environmental Center, Sandy

Lake, Pa.; (800) 933-0318.

American Lumber Standard Committee - July 22, board of review meeting, Washington, D.C.; (301) 972-l7OO.

Ohio Lumbermen's Association - July 27-28, installed sales seminar, Embassy Suites, Dublin, Oh.; (614) 267-7817.

Southeastern Lumber Manufacturers Association - July 2931, annual conference, Westin St. Francis, San Francisco, Ca.: Qjq 36r-1445.

Aucusr

Watters & Martin - Aug. 1-2, market, Norfolk Scope Exhibition Haf l, Norfolk, Y a.; (7 57) 857-065 1.

Michigan Lumber & Building Materials Association - Aug. 4, golf outing, Hawk Hollow Golf Course, Bath, Mi.; (sli) 3945225.

Wood Moulding & Millwork Producers Association - Aug. 47, summer meeting, Long Beach, Ca.;(530) 661-9591.

Builder Marts of America - Aug. 4-8, market, Baltimore Convention Center, Baltimore, Md.; (864) 297-610l.

Southern Building Material Assn. - Aug. 5-8, summer conference, Ramada Plaza, Virginia Beach, Va.; (800) 849-1503.

Illinois Lumber & Material Dealers Association - Aug. 5, Rock River outing, Silver Ridge Golf Course, Oregon, Il.; Aug. 12, Cahokia outing, Governors Run, Carlyle, Il.; (800) 252-8641.

Window & Door Manufacturers Association - Aug. 7-10, summer meeting, Santa Ana Pueblo, N.M.; (847) 299-5200.

Wood Truss Council of America - Aug. 1l-13, quarterly meeting, Madison, Wi.; (208) 274-4849.

Monroe Hardware Co. - Aug. 14-15, fall market, Palmetto Expo Center, Greenville, S.C.; (704) 289-3121.

National Hardwood Lumber Association - Aug. 16-20, lumber grading short course, Memphis, Tn.; (800) 933-0318.

Florida Building Material Association - Aug. 26-28, annual convention & show, Renaissance Orlando Resort at Sea World, Orlando, Fl.; (352) 383-0366.