Top tips for succession planning in the fitness industry.
For family-owned businesses, succession planning is often fraught with emotional and logistical challenges. Steven Schwartz, the CEO and co-owner of Midtown Athletic Clubs, provides a valuable playbook for those looking to navigate this intricate process. With decades of experience owning and operating a family business, Schwartz has learned that thoughtful preparation, clear governance and personal development are key to a smooth transition from one generation to the next.
The Importance of Estate Planning
One of the most crucial steps in succession planning, according to Schwartz, is preparing for the eventual financial implications of passing the business on. Schwartz’s father, Alan, ensured that all of Midtown’s holdings were placed in a trust early on, preventing the need to sell the business to pay hefty estate taxes, should the need arise.
“If you don’t [plan for estate taxes], you’re committing business malpractice, period,” said Schwartz. Estate taxes can be as high as 55%, which, if not accounted for, could result in the loss of the business.
Schwartz emphasized that estate planning is not a one-time event but an ongoing process that can take years to fully execute. “It takes time to make it — it’s not you sit down with a lawyer and sign papers,” he shared. “It takes years, sometimes, for all the benefits and transfers to filter through.”
Competence Over Family Ties
One of Schwartz’s most valuable lessons is that family relationships do not guarantee a right to leadership within the company. “Just because it’s your kid doesn’t mean they know what they’re doing,” Schwartz explained.
His advice is clear: the younger generation should first work outside the business, gaining experience and building a professional network, before taking on any role within the family enterprise.
Schwartz himself worked for six years outside Midtown, bringing new skills and a different perspective when he joined. Similarly, his son, Alex, had a successful advertising career before deciding to join the family business. “I wasn’t pushing him,” said Schwartz. “It was really more pull energy than push energy. It was organic.”
This external experience helps to foster confidence, mitigate family conflict and ensure that the next generation is prepared to lead.
Clear Governance Structure
Family businesses often suffer from blurred lines between family roles and business responsibilities, which can lead to internal conflict. Schwartz’s family has developed a simple but effective governance model to prevent these issues.
Schwartz describes four distinct roles in a family business: family, ownership, management and governance. “Everyone needs to understand their role and take it seriously and accept it,” he said. Family members may have opinions about the business, but only those in management or governance roles should be involved in decision-making.
Understanding and clearly defining these roles ensures smoother operations and reduces the likelihood of unnecessary conflicts.
Avoiding Family Conflicts
To further reduce potential family conflicts, Schwartz and his father created a formula for share buyouts within the family. The predetermined buyout price saved them from the emotional turmoil of negotiating in difficult times and it allowed for the buyout of shares without over-straining the company financially.
“By not having a price negotiation, it saves a lot of potential hard feelings,” said Schwartz. The formula, based on business performance, ensured fairness while protecting the company’s future.
Reinvesting for Long-Term Growth
At Midtown, Schwartz and his family made a conscious decision to reinvest profits back into the business rather than distributing them among shareholders. This has allowed the company to grow sustainably over the decades.
“We don’t take distributions out of the business,” Schwartz explained. “That’s how we’re able to grow.” By focusing on long-term growth rather than short-term gains, Midtown has remained competitive in an ever-evolving industry.
The Long Game of Succession
Schwartz is currently grooming the next generation of leadership in the family business, specifically his son, Alex.
Alex, who serves as vice president at Midtown Athletic Clubs, is already heavily involved in the business and, much like his father, has spent years earning his place in leadership.
While the transition from one generation to the next can be a challenging and emotional process, the Schwartz family has built a foundation of strategic estate planning, family governance, and long-term vision to ensure Midtown’s continued success.
As Schwartz reflects on his journey, he leaves other family-owned fitness businesses with a final piece of advice: “Businesses are living, breathing organisms. If you’re not growing, you’re kind of dying.”
