C.H. James III is the fourth generation of James men to run his company, C.H. James Co.

Between C.H. James III, his father, his grandfather, and his great grandfather, the James men have learned that making changes to benefit C.H. James & Co. has always been central to the company’s success, whether they were focused on poultry and egg distribution, serving multinational brands like Yum! Brands and Darden Restaurants, or owning Burger King franchises. But another key to their success was making leadership changes in the appropriate way and at the appropriate time.

For example, when Chuck James III bought his father’s eponymously named international wholesale food distribution and food processing company in 1988, sales had dropped from $4 million to $2.6 million in just three years. Although his father had run the company successfully for many years, the economic times had become difficult right when he had planned to retire. When the fourth generation James took over the Charleston, West Virginia-based company, which was founded in 1883, he created an investment holding company through acquisitions, partnerships, and divestitures that allowed the family business to regain its market strength and grow sales to $20 million by 1992. It was a strategy his father wouldn’t have done, but one that saved the company. Now, the company’s sales are approaching $60 million.

When passing a business down from an older to a younger generation, disagreements are sure to arise. Yet there are preventative measures families can take to make sure the transition of power is made smoothly and peacefully without compromising the well-being of the company. Here are James’ tips on making a successful transition from older to younger generations in a family-run business.

• SEE ALSO: Don’t Miss Your Chance To Network With Intelligent Performers

C.H. James Co. was founded in 1883 by Charles H. James (upper left).

For the predecessor:
Be wary of the “allowance to salary program.” Your kid shouldn’t go directly from getting an allowance to getting a salary from you after graduating from college. “There needs to be an interim step to encourage the next generation to work outside of the business for a while before joining the family business,” says Chuck James III, who worked for the Continental Illinois National Bank and Trust Co., now a part of Bank of America, before joining his father’s company. “You can’t handle your boss like you handle your dad. But when your dad is your boss, those lines can become blurred.”

For the successor:
Go out into the world. Get experience outside of the family business, get promoted, succeed, and then return. Learn the standards for professionalism and value-added skills that you can bring back into your parents’ company. “A lot of times, kids become adults and [their parents put them through college and give them a job]. They wonder if they could have done any of this on their own or if they are eternally indebted to their father or mother,” says James. Also, employees might think the only reason they are the boss is because of who their father is. By leaving, you know that you were on the fast track outside of the family business–you had a career, but you came back to help. It helps for the other employees to know that too.

For the predecessor:
Adapt to changes.  Normally, the younger generation wants to come in and try new things, says James. The older generation remembers what solutions worked well for them. “I used to say to my father, ‘Daddy, did you run the business in the 60s and 70s the way your father ran it in the 40s and 50s?’” James remembers. “He would say, ‘Well, no son. I had to make changes.’ And I would say, ‘So what makes you think I can run the business in the 80s and 90s the way you ran it in the 60s and 70s?’”

For the successor:
Honor your history but keep your eye open to the ever-changing economic landscape. Business cycles are faster and faster. Be able to shift strategies if need be. What may have been a sure thing a generation ago, will not be now.

For the predecessor:
Have a well-defined succession plan in place. Know when you will retire. Some founders will hold on to the very end, sometimes until it is too late. It can be challenging if the next generation doesn’t know when or if they will be able to take control or stretch and do their own thing.

For the successor:
Discuss and define your transition into power. Make sure there is a very defined timeline as to when you will succeed your predecessor. Outline a plan to ensure that you are exposed to all of the relevant operations of the business. Also, there are certain milestones that you need to accomplish. For example, you might agree that you need to be in sales for three years, in finance for three years, production for three years, and then you will take control as CEO.

Check back next week for more tips from Chuck James III on preparing your company’s next CEO.

• SEE ALSO: Family Business: When Your Business Partner is Your Spouse.

Keep boundaries clear. Make sure that each person has a title, role, and responsibilities that are spelled out and very clear. Clarify the job descriptions. In a start-up, everybody does everything. But with couples, that is where a lot of the conflict happens, says Hilburt-Davis, author of Consulting to Family Business. It is critical that they don’t step on each others toes. Establish each person’s job function, compensation, and title on industry standards and review it later.

Agree on the value and vision of the company. They may agree on the values, but disagree on vision. Have a strategic planning meeting early on to decide the goals for the business in two months, two years, and 10 years. “If they are not in agreement on that, I would caution them to not go into business together,” says Hilburt-Davis.

Decide how to break stalemates. “It is very important that–if they have a disagreement and they probably will–they decide what process they will use to come up with a plan,” she says. “That is where couples will get stuck. They get into an argument and don’t have a process for settling it to move to an action plan.” Whether they call in a neutral expert to make the decision or decide that one of them should act as an expert on certain subjects, it is important that they build in a process for conflict resolution.

Create a board of advisers. Even if they are a small company, have two or three trusted experts in their field–not competitors–who they meet with quarterly or semi-annually who would function as the board of advisers, says Hilburt-Davis. Copreneurs have a higher risk of conflict and stalemate than family businesses because it is just the two of them. A board of advisers is important for any company, but they are especially important for copreneurs because the advisers are trusted people that a husband and wife can turn to when they’re in a stalemate.

Set up rules for separating family and business. Keep healthy boundaries between the family and the business. Some couples say they will never drive to or from work together because they need the time alone, the time to transition from business to family. Another rule some couples advocate is to not talk business at home or on vacation. I don’t tell copreneurs what the rules should be but I advise them to have rules. It doesn’t matter what rules you choose, just try to develop time away from both your partner and your business.

For more information about couples in business read:

Recipe For Success: Copreneurs blend their knowledge and resources to produce $20 million company

Natural Solutions: Copreneurs Bring the Back Office Out Front

Sleeping With Your Business Partner

The Couples in Business Network

Julie Gordon White advises families to draft a buy-sell agreement, which will help them decide how to break up a company in the future.

Running a business is difficult enough without family power struggles and generational differences. Inevitably a parent will die, siblings might want out of the business, or spouses could get divorced, causing the remaining family/owners to bicker over who gets what piece of the family business pie. “No business is worth losing your family over so take the time to discuss all buy, sell, and partnership parameters before they elevate to issues and the most important relationships in your life are lost,” says Julie Gordon White, owner of BlueKey Business Brokerage M&A, a firm specializing in the sale of mid-sized companies with revenues up to $20 million.

Also known as a buyout agreement, a business prenup or a business will, a buy-sell arrangement consists of legally binding clauses made by co-owners to decide how the business will be broken up, who can buy a departing partner’s shares, how the price of the shares will be calculated, and what circumstances (i.e. death, divorce, or other life-changing scenarios) will trigger the agreement.  This week on Family Biz, Gordon White suggests three things  that your family should do while drafting a buy-sell agreement to avoid any future squabbles.

1) Agree upon a valuation method. The value of your business will fluctuate, so having a clearly defined and documented valuation method will alleviate future disputes at the time of sale. “One partner may think the business should be valued on a multiple of 3 (usually the buyer) while the other thinks a fair multiple is 5 (probably the seller), creating a huge discrepancy in value,” says Gordon White.  You can agree to terms up front or simply agree that you will hire a mutually acceptable certified business appraiser.

2) Determine how the sale will be financed. Bank financing may or may not be available and alternative sources should be agreed upon and documented in the Agreement. Cash isn’t the only consideration to be exchanged during a sale, says Gordon White.  A transfer of debt, a line of credit against receivables, and seller financing are only of few of the many ways to finance a transaction.

3) Hire professionals. Make sure that your business appraiser or valuator is an experienced transaction accountant who clearly understands the tax consequences of a change of ownership because tax mitigation can be an integral part of crafting the Agreement. “It’s not how much you get, its how much you [get to] keep, so know how much Uncle Sam is going to take before you make any final decisions,” says Gordon White.

For more information about buy-sell agreements visit:

Julie Gordon White’s Blog: ThePinkBizBroker

The Institute of Business Appraisers

The American Society of Appraisers

Top Strategies on Buy-Sell Agreements for Entrepreneurs

Husband and wife Brian and Autumn Merritt own Sir & Madame boutique in Chicago

When your business partner is your spouse it’s important to take extra measures to keep any work conflict from overflowing into the marriage. Take for example, Brian, 29, and Autumn Merritt, 27, co-owners of the fashion boutique Sir & Madame in Chicago. They also are the proud new parents of a very sociable 8-month-old boy, Ari Merritt, who’s been made an honorary employee, which predominantly means smiling and teething. Black Enterprise caught up with the married business owners to talk about how to maintain a successful marriage and family while running a family business. They make it look very easy but as Autumn stated: “It’s a work in progress.”  Here are six tips the couple say has kept their marriage, family, and business together and progressive.

1.  Communication – Brian says this is needed for work life and home life. “We try not to take the work home. I think when we don’t agree on certain things in the store when it comes to buying, we talk about the pros and the cons and which pros outweigh which cons. We also bring the staff in when we’re not agreeing on something, to keep it diplomatic.”

2.  Set boundaries – Autumn believes in trusting your partner if they say they are going to do something and believing that they are going to follow through. “Not everything has to be black and white with the boundaries. If it’s one person in charge of the paperwork, trust that that person can do it. If that’s going to be the man’s job or woman’s job, let it be that.”

3. Depend on spirituality – Brian says you should make whatever god you believe in a constant in your family, marriage, and business. “You have to have a strong spirituality,” he says. “The last month has been like that for us; the economy was slow, we just moved to a new space, and God has been doing us justice.”

4. Be prepared to step down – Understand that your blueprint may not be what’s best for the business. Autumn believes you should pick your battles wisely. “You’re going to butt heads. Don’t lose every battle and give up on everything, but know that you’re not going to win every battle either.” Brian adds: “You have to learn how to balance something that is supposed to last forever with something that could potentially fail and potentially destroy your relationship.”

5.  Seek help with parenting – Take people up on their offers to help. Autumn and Brian take Ari with them to work every day, but he has his own space and he’s pretty easy going. When it comes to the parents getting their own time, they are not afraid to use their support group. “Fortunately, we have parents who go through Ari withdrawal every two-to-three weeks and we’re able to take advantage of that support system,” says Autumn.

6. Strengths and weaknesses – Be honest with yourself and your partner about what you can and can’t do well. Brian understands that he’s not a numbers guy and, for the business to succeed, that’s not something he should spend the majority of his time on. “I’m not very organized so we pay people to do those types of things. I don’t think I can keep the business growing if I’m doing tedious paperwork instead of coming up with deals and making connections for the company. Accounting does accounting,” he says.

For more Family Biz resources read:

The Family Business Institute

5 Questions to Ask Before Hiring Relatives

5 Tips on Working with Family

The Wayans made entertainment a family business, but that doesn't mean it was easy.

Hiring relatives to work for your Family Biz can get quite touchy. Even if you need the extra help, there is always the risk that your family member might not be a good fit for your company, says Don Schwerzler, owner of the Lawrenceville, Georgia-based Family Business Institute, Inc. and Family-Business-experts.com, a multi-disciplined consulting resource for family-run businesses. Here are five things Schwerzler says you should consider before hiring a family member:

What is your motivation? Family businesses tend to be two distinct models: Family first businesses or business first businesses, says Schwerzler, who has 40 years of experience providing advice on the subject. The differences can be dramatically different. Are you hiring a family member because they are family and need a job or do they have a set of skills that the business needs? Be honest with yourself and with the relative about your motivation for hiring them.

Do they share the values of your company? Just because they are family doesn’t mean they have the same values that you have. They might have a different work ethic than what you expect. Also, if you consider yourself to be a family first business and they have a business first mentality, you might think you are offering them a safety net and they may see it as a trampoline or a stepping stone to get to their next job.

• See Also: 5 Tips for Working With Family

Are they being paid for what they are worth? Let’s say you bring in a family member to work as a manager, says Schwerzler. They were getting paid $60,000 at their former employer, but you have four managers and you pay them a $35,000 salary. Just because the family member is accustomed to earning more, doesn’t mean that will work for your company. The risk of paying a family member more or less than what they are worth can cause dissension between employees and cause problems with your profit margin.

Are they over-qualified or will they require a lot of training? If so, you may want to encourage your family member to work somewhere else. “One client thought that was a good idea because he’d rather have his kids make the mistakes…when they are on someone else’s payroll,” says Schwerzler jokingly. “But there is a lot of truth to that. There is something called the new nepotism. It might be better to invest time and energy helping them get a job somewhere else than to hire them.”

What will be the consequences if you need to fire them? It is always to tougher to fire than it is to hire a family member. As a precaution, formalize the employment agreement and put it in writing just as you would with any other employee, says Schwerzler. Make sure they understand the conditions of their employment, and whether it is permanent, seasonal, or temporary. Also, be clear that if they don’t live up to what you expect in terms of job responsibilities, performance, and attendance than their relative status won’t keep you from terminating them.

For further reading on family businesses check out:

9 Steps for Working Smoothly with Friends and Family

A blog about keeping family in the business mix

Right On Track

The story of two brothers who started a construction company together.

A Whopper of A Franchise

About owning restaurant franchise with family

Hiring family can be good for your business if you manage them well.

Today BlackEnterprise.com will give birth to the newest member in our family of franchises: The Family Biz blog. Every Monday afternoon, check in here for tips and advice on issues related to working with family. We will cover everything from succession planning and divorce, to hiring and firing family. If you already own a business with family and employ several relatives you probably know the challenges that surface from time to time–as well as the victories. Augustus McMillan, managing director at McMillan Consulting, took a moment out of running his seven-year-old family business to talk about the etiquette of working with family. Here are his five tips to making working relationships comfortable for family employees, non-family employees, and clients:

Be honest about family. Do not keep it a secret when your relatives are also your employees. “I’ve had a few clients that hid the fact that they have family members working for them,” says McMillan, who hired an aunt, a sister, and a cousin.  “When it eventually comes out–and it will–the raise or promotion will make the [non-family] co-workers feel like they didn’t have a chance and that you were being deceitful.”

It’s OK to talk to your family like they’re family. Don’t act differently toward your family just because you are at work.  “My mom isn’t an employee but our businesses share many clients and projects. I call her mom when we’re working. I will never be comfortable calling my mother anything other than mom,” says McMillan, who encourages employees and clients to address each other informally so that everyone feels like family.

Don’t give family members special treatment. Don’t reward or punish someone because of their familial relationship with you. If others get disciplined for bad behavior, your family member must be disciplined also. But do treat any employee, including family, special if they deserve it.

Don’t disclose company secrets to family outside of the office. Baltimore, MD-based McMillan Consulting is a business and tax consultant company that deals with confidential information. Employees, whether family or not, should not tell others in the family client info or proprietary secrets. “In today’s connected world you never know who knows who,” says McMillan. “If a client finds out that their info was discussed … it can cause you to lose projects and reputation.”

Don’t work your family members when they should be off the clock. “It’s OK to ask a question about a project or client when you’re at a cookout that will take a minute to answer,” says McMillan. “If it turns into a five minute conversation, then that’s OK. But it shouldn’t go beyond that unless your family member is the one who wants to talk about it.”

For more information about running a family-owned businesses check these sites:

Family Business Experts

The Greater Washington D.C. Family Business Alliance

The Bryant University Institute for Family Enterprise

The Family Firm Institute

The company is an affiliate of 125-year-old C. H. James & Co., which was founded in Charleston, West Virginia, as a wholesale distributor of fresh produce. As that parent company’s fourth-generation CEO, James has driven its evolution from distributing food to restaurants to manufacturing food for restaurants and, since 2004, owning restaurants. C. H. James & Co. still has food distribution contracts for Darden Restaurants, but the vast majority of its efforts now are in the quick-service restaurant business. By adapting to the changing times, the company has been able to survive and thrive.

“People talk all the time about how Wal-Mart has wiped out Main Street. What they don’t talk about is Wal-Mart also wiped out Main Street’s suppliers. My family business was predicated on supplying mom-and-pop grocery stores and restaurants. As those businesses slowly died off, we really didn’t have a market anymore. We literally had to shift our market to stay in business,” James says.
Profits in the distribution business are typically 1% or 2%, while his restaurants can achieve pretax margins above 10%, says James. His average annual sales per restaurant are about $1.4 million. He says existing fast-food restaurants generally sell for five to six times earnings-several hundreds of thousands of dollars.

C.H. James Restaurant Holdings has grown into Burger King’s largest African American franchisee, says Jonathan Fitzpatrick, senior vice president, development and franchising at Burger King Corp. James has established excellent operations, recruited and retained the right employees, delivered great customer satisfaction, and stayed focused on each store’s profit and loss. “Chuck is engaged in every aspect of the business, whether it’s the operations, the financial, the people, or great communication with the corporation. His engagement as a franchisee is the key to his success,” Fitzpatrick says.

In 2007 he was one of nine franchisees worldwide to receive Burger King’s Brand Leadership Award. But how well will C. H. James Restaurant Holdings weather today’s turbulent economy?

“My outlook on the restaurant industry overall is somewhat negative, although I am a little bit more positively inclined on the fast-food portion of the industry. I think people are going to trade down from casual dining alternatives to fast food, and fast-food companies have done an OK job of adding healthier options to the menus,” says Mark Basham, a restaurant analyst for Standard & Poor’s Equity Research.

Quick-service restaurants are forecast to post 2008 sales of $157 billion out of the entire U.S. restaurant industry’s $558 billion. “This year there are a host of challenges to restaurant operators, ranging from skyrocketing food costs to higher labor costs to an escalating energy price situation,” says Hudson Riehle, senior vice president of research and information services at the National Restaurant Association. Restaurants also operate in an extremely competitive environment where customers have many choices.

As stores try to stay competitive by not raising prices, higher costs are putting pressure on the usual 5% or 6% quick-service restaurant pretax profits. One way restaurants drive sales volume, which increases profit margins, is to improve staff to serve customers better.

Employee turnover at James’ restaurants is 60% a year and not the typical quick-service 130% to 150% rate. “What we try to do is recruit really great people, show them that they have a career opportunity with our company, train them, develop them, and retain them,” says James. “If there is any one key to our organization’s success, it’s the people we have on our team who are in the stores delivering excellence every day.”