By JANE SCHMITT

There are few things more impressive than a family-owned business whose principals demonstrate the passion, clarity and commitment it takes to ensure multigenerational success.

Likewise, there's nothing more tragic than a company that falls apart when family trust deteriorates and a lack of planning causes things to go sour.

"In a typical family business, trust starts off very high," says Buffalo lawyer Scott Friedman. "What could be a better thing than for parents and children or spouses to be working together? But over time, trust diminishes because decisions are made randomly and in an ad hoc, inconsistent manner, as opposed to principled, policy-based decisions.

"If an adviser comes in too late and the momentum is steep and quick, there's not much the adviser can do."

Friedman, who has spent decades representing family enterprises, says he has seen everything, from from industry giants in the world market to local mom-and-pop companies whose owners simply are trying to scratch out a living in a tough economy.

"There are a lot of people who wind up in family businesses for the wrong reasons," he says. "It's lucrative. It's expected. It's easy and comfortable. That's opposed to the better reason: because it's where their passion lies."

Passion is everything, according to Friedman, a partner in the business and financial transactions group at Lippes Mathias Wexler Friedman LLP.

"I think that's a key aspect of family business planning: helping potential participants clearly think through whether the business of the family is where their passion lies. And if it is, then that is perhaps the most important first step in smart planning," he says. "If it isn't, then the best thing a parent or relative can do is help the family member identify where their passion does lie, and then support and encourage them to go and pursue it."

Friedman is a frequent lecturer and the author or co-author of several books, including "The Successful Family Business" and "How to Run a Family Business." He estimates that 90 percent of American companies rely on family involvement.

"And I think Buffalo is probably consistent with that," he says.

The importance of such businesses in the modern economy is clear. Indeed, family-controlled companies contribute between 30 percent and 60 percent of the nation's gross domestic product and half of total wages paid, according to the International Family Business Program Association.

"Just as families are the building blocks of a stable society, so are family businesses important in building a stable economy," the association states on its Web site. "A family enterprise is by its very nature more inclined ... to reinvest in itself to support and perpetuate wealth in future generations. The family firm has the capacity to make long-term investments and resist the pressure of analysts for short-term returns, which frequently burden the publicly held corporation."

Whether family-controlled or not, all closely held businesses share a need for smart, logical planning. Things happen, and change is inevitable, Friedman says.

"All businesses need to plan. The world is unpredictable and it's competitive and it's ever-changing, so every business needs to plan thoughtfully and carefully," he says. "Family businesses have an added dimension because of the family dynamics. People get married; they get divorced. They die or become disabled. And the impact of those sorts of changes often have different repercussions in the family context than in the non-family context."

The result can be dysfunction, disharmony and disarray, according to Friedman.

"I'm a big believer in a several-step process. The first begins with making sure that there is authentic passion to work for the family business. Once (that) has been established, then I'm a believer in clarity - clarity around how decisions are made from a clear business plan, a clear financing plan, a clear organizational and operating plan," he says.

"Everybody knows what the policies are, what the rules are, what is expected of people, how they can advance and grow in the business. And similarly, if they don't perform, then what the consequences might be, including ultimately being asked respectfully to leave and pursue something else that may be a better fit."

The most-effective business plans are rooted in clarity and commitment, he says.

"What I try to do is explain, with models based on experience, the challenges that families inevitably face. And I encourage the leaders to have the courage to consider those issues and to be willing to address them smartly and proactively when they have the best chance to protect their family and their family business interests.

"Frankly, there are (companies) that don't do such planning, and a lot of the work that I have done is to make it easy for people to understand the logic for smart planning, rather than provide a lot of legal mumbo-jumbo to people that won't resonate with them."

Peter Klein, a partner in the Buffalo firm of Jaeckle Fleischmann & Mugel LLP, says every business is different, and the family situation simply adds to the uniqueness.

"People can't think that just because it's a family business, they can treat it like it's their own," Klein says. "The business must conform with legal and accounting (standards) and fairness to other family members. That means the ones in control can't treat it like a piggybank."

Good practices and good planning are the keys to success for all types of companies, according to James Smyton, a partner in the Phillips Lytle LLP law firm. Another key? Healthy communication at all levels. Get things out in the open rather than letting problems fester.

"That's not just the first step. It's steps one through five," Smyton says.

He suggests the formation of a family council to help with decision-making and to address issues as they arise.

"The problem is, in many, many situations, you don't have good advisers to tell you to do this," Smyton says. "Nowadays, nobody is talking about the elephant in the room. I know that is an overused expression, but it's so accurate. Where I see problems in the family business is that they don't talk out their issues. People have to talk to each other."

Jane Schmitt is a Williamsville free-lance writer.