How to manage an inherited business

When an entrepreneur dies, loved ones are forced to make tough decisions.

Ann Gaspar, Fairview Park, Ohio
I recently inherited a small computer servicing business due to my husband's passing. I am looking for reading material on learning/managing an established business and can't find any titles. Can you recommend anything that will help me step into this role and excel in it? I am a registered nurse, so the business world is new to me. There are six employees that have kept the business going fairly well in the year of my husband's illness, so I'm not on my own entirely.

By Kathleen Ryan O'Connor, CNNMoney.com contributing writer

Even with the best of planning, it's devastating when the owner of a family business suddenly dies. The employees wonder if the shop will close, new managers have to be quickly trained, and the bills never stop coming. And, of course, there's grieving.

Josephine Geraci barely got to enjoy being a newlywed before she was thrown into the chaos of a medical crisis. In 1996, she married Jerry Cantwell, her longtime boyfriend and the man with whom she had built a thriving, boutique Wall Street analysis firm. But less than a week after they returned from their Caribbean honeymoon, Jerry inexplicably forgot her nephew's name. Then, a week after that, "the doctor is telling me he has two months to live."

Cantwell died the next year of a brain tumor. He was 52.

Geraci found herself tossed headlong into two desperate and disparate worlds: grieving spouse and surviving business partner. She discovered is there is no guidebook for either.

Prior planning can help with many problems. Business owners should work out and discuss with other managers a Plan B for what happens if the main proprietor is unable to carry out their duties. Who will run the business? How will cash flow be managed? How will estate tax liabilities be minimized? Who in the family is prepared to take over - and if no one is, how will the transition to outside control be handled?

Brian Raftery, a lawyer with the New York firm Herrick, Feinstein LLP who specializes in succession planning, says it's easy for small business owners to get so consumed with growing their business that they put off making plans for the long-term future. But without a plan, things can go south quickly - particularly if there isn't a will. Without one, the state gets to decide who gets what chunks of the business.

In New York for example, the surviving spouse doesn't automatically inherit the entire business. If there are children, half goes them - and if they're minors, they will need a court-appointed guardian.

But plenty of business don't have contingency plans, leaving the survivors to sort it out from scratch.

There is no reason why a spouse, even if they have never been that deeply involved in the business before, can't make a go of it if they desire. Sometimes that fresh perspective can be a welcome change, says Charles Matthews, professor and executive director of the Center for Entrepreneurship Education & Research at the University of Cincinnati's College of Business.

You have two main sets of issues to resolve: ownership succession and management succession.

"She could easily take over as owner and not take over as operator," Matthews says. That's the ideal role for someone who isn't interested in day-to-day management but who still wants to keep the company in the family.

Other options include selling the business outright to a third-party, selling it over a period of time to one or more employees, or retaining ownership and formalizing a management structure.

While books on managing change can be helpful - Amazon.com has a lengthy list of business self-help bestsellers - gaining the advice of a seasoned business professional is probably going to be more useful in the long run. The Small Business Administration's SCORE centers offer free counseling. The closest one to you appears to be in Cleveland.

One option worth considering to help you get through the first few months: You could hire an interim CEO.

Mark Rittmantic, founder of the Northbrook, Ill.-based temporary CEO firm ForteCEO, says the most common reason owners seek out his business is that their company grows to the point where it requires leadership skills the current managers lack. But a sudden death is also high on the list: "Number two is 'there is no succession plan,'" he says.

In too many cases, the business begins to fall apart and is sold in a distress sale, giving the owner or his or her family a less-than-optimal price. Rittmantic recalled one charismatic woman who built a collections business up from scratch, eventually employing more than 100 workers. She was the driving force behind the business and was quite generous, supporting three generations when she died of ovarian cancer, he says. After her death, "that company went out of business in six months."

So who is in the best position to step forward in the short term? Our experts agree it's probably not the surviving spouse. A trusted lawyer, accountant or family friend - even someone with very little business experience - can be invaluable.

"Choose someone who knows what they don't know," Raftery says. "If they think they know all about investing and financing but lost their shirt over the past 10 years, they can be more dangerous than someone who recognizes they don't know everything and will ask the expert."

Looking back, Geraci, now 43 and living on Long Island, says trying to keep running the business was too much for one person to handle on their own, emotionally or professionally.

"I should have had someone watching over me," she says. "You are not thinking straight. You don't care about money."

She ultimately decided to shut down Lionheart Research, one of the industry's first niche firms specializing in aerospace and defense equity research. "I kept the clients in the loop," she says, so that when her husband's health worsened they had an idea they were "at that point."

Still, she says, "Everything hit all at once. I was forced to make many of the big decisions right away."

Kelly Trieglaff of Fort Wayne, Ind. decided to forge ahead with her husband's dream of running his own business after his death last year. She discovered along the way that even someone with very little experience running asmall business can succeed - albeit with a lot of help.

Kelly's husband Mike was in the restaurant business, but had always dreamed about doing something entrepreneurial built around their family's passion for baseball. In 2006, they jumped at the chance to buy an Extra Innings training center franchise. The couple was just getting their new business off the ground when Mike received the dire diagnosis of stage-four bladder cancer.

Despite her grief, a new role as single mother to three boys and a full-time job she still holds at a biotech company, Trieglaff says she felt a huge responsibility to honor her husband's dream.

"There was no question we were going to continue with the business," she says. But the reality of running a new business still very much in the red was daunting, to say the least. "That's when I started to think, I don't know what I'm going to do.

"I contacted an attorney, worked with a CPA, and asked 'What is the right thing to do?' It's a seasonal business, and summer and fall is tough," she says. "I was going through the whole grieving process and couldn't really focus on anything ... the CPA and the lawyer, they were honestly advising me to close."

She brought in a friend of the family as a partner. With the help of everyone from the landlord to the franchise company, Extra Innings is now supporting itself. Even with her degree in nursing, Trieglaff found she could draw enough from her experience in pharmaceutical sales to get her through.

"I'm very bossy," she laughs, "so that was not a problem for me."

Josephine Geraci remarried and became a mother of three, which prompted a return to the world of entrepreneurship. She founded My Mom Knows Best, a company that manufactures disposable hand covers for kids to use in germ-filled public places.

She doesn't regret selling the Wall Street business. What helped her the most, she says, is funneling a lot of her grief in those early days into raising money for brain-tumor research.

"I just took that grief and that real deep sadness that I felt and said, 'I just have to help one person.' That's how I got through my days," she says. "I didn't want my husband to die unnoticed."

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Related links:

Selling your business and keeping the gains

Selling out and shutting down

Finding the best broker for your business