Succession Stories: Pugh's Diamond Jewelers
Patrick Pugh, 48, once considered the “black sheep of the family,” has owned Pugh’s Diamond Jewelers in Zanesville, OH, solo for three years.
His parents had founded the business in 1949 and his two brothers and a sister-in-law all worked in the business, too. When his parents retired, each brother, in turn, became CEO. Three years ago, it was youngest brother Patrick’s turn to buy out brother Dan, who retired. Before the succession, Patrick was sales manager.
“When I was in grade school, I wanted to do what my dad did,” Patrick recalls. When he was 15, he worked part time in the business, then studied business in college, followed by GIA, where he earned first his GG and then his CGA.
His parents didn’t believe in sending the kids off to work for someone else, but Patrick says he would come and go (earning his black sheep title), and on his own initiative worked for a couple other jewelers. “I thought maybe the grass was greener,” he explains. “I came back from LA, and then when you go back and work with your parents, two brothers and your sister-in-law, you kind of want to see what else is out there.”
What was out there just didn’t compare with working at an American Gem Society store like his parents’. He worked for a chain where he was expected to get people to put as much merchandise as possible in lay-away and to mark up inferior stones.
“It made me appreciate what I could have, and when I came back, I started working on the bench,” he says. “There was a concerted effort by my family to get me to learn the business. But I wasn’t handed anything. I learned the way from the back end to the front end and I’m very grateful that my family put me through the paces that way.”
When his parents retired, the Pughs relied on local CPAs and attorneys with whom they had developed relationships. They had given the boys shares of stock, making the business a gift, and selling them the property. “For tax purposes, their goal was to gift so many shares per year to the boys,” Patrick explains.
For Patrick, the biggest transition came three years ago when he bought out Dan, who retired at 60.
“My advice to anyone in partnership is to have a solid buy-sell agreement in writing beforehand,” he cautions. “It doesn’t guarantee there will be no hassle or litigation, but it helps if everyone knows the intent up front. We had arrived at a formula at which to evaluate the business way beforehand and so when the time came it was pretty cut and dried. We used a formula that involved looking at our financial statement and determining the book value of the business plus 20 percent.”
The agreement allowed him to pay for the business in installments or to ask the bank for the cash. Dan agreed to a cash price that saved Patrick $25,000. “Now I’m partners with the bank, instead of him,” Patrick says.
Dan wanted them to share the same CPA and corporate attorney to save money, but Patrick used a second set of professionals as well, just to get a second opinion.
“One tricky subject that came up over the years was, ‘Can our kids come into the business, buy in, get shares of stock?’” Patrick says. “Be sure you know what you feel about the other person’s kids, because you may not want to be partners with them. It was written up so that the kids were able to come in and work and if they worked here they could own stock. Eventually we cleaned it up and said, ‘NO KIDS,’ but that was only after my siblings knew their kids didn’t want to be in the business.”
Where will the business go next?
Patrick can’t be sure at this point.
“My kids are very young, 7, 5 and 2 years old. I’ll probably be working a long time.”