A dealer recently told me, “I have one brother who is my best friend and one who I don’t talk with, all because of business and financial issues.” Tragic yes, but not uncommon. Having worked with auto dealers and their families for 27 years, I have witnessed situation after situation in which the family business has resulted in lots of family heartache. Fortunately that does not have to be the end result and there are many examples of family dealerships being run successfully by harmonious family members. So what are the landmines that you need to avoid?
False expectations regarding working in the business – As parents, we can be guilty of having good intentions but creating false expectations with our children. If your desire is to see your children succeed you in the business, it is likely that you have conveyed that message over many years. Since you were highly motivated and therefore did what you had to do to succeed, you may assume that your children will do the same, but often they don’t! Usually this happens because you don’t hold them to the same standards that you held yourself and allow them to bend the rules, which you would not allow others to do. Since they may be paid and promoted regardless of their productivity, a false expectation is created that they are succeeding and are entitled to one day be your successor.
Unfortunately the car business is a tough business and we are all being reminded of this daily in today’s difficult economic environment. “Only the strong survive” appears to be more reality than a cliché. Therefore, unless your children have paid the price to be capable leaders, they are likely to be counted among the casualties once you are not there to prop them up.
False expectations regarding the rewards from the business – Dealers often utilize the dealership to pay for many family perks, such as cars, gas, group medical, payroll above and beyond services rendered, etc. This is often done to help the lifestyle of family members. This often goes on for years without significant problems, until the day comes when your son or daughter is now working in the business, while other family members continue to enjoy the perks without participating in the running of the business. Those inactive children often assume that they are entitled to these benefits, as “Dad has always run the dealership as a ‘family business’.” One frustrated fifty year old dealer told his father, “Dad, this is not a ‘family’ business, it is a ‘father-son’ business!”
False expectations that everyone is to be treated equally – This opens up a whole can of worms, including estate distribution, opportunity in the business, and the false expectation that every family member brings the same dedication, talent, commitment and willingness to work.
For some reason most parents spend a great deal of energy trying to give each of their children the same amounts of everything, whether this involves holiday gifts or life experience opportunities. Obviously we want each of our children to know that we love them equally and so we don’t want them to interpret our gifts as favoring one child over the other. This problem of equalization reaches a crescendo when we have multiple children and expect to transfer our dealership to one or more of them. The fact is that there are only two ways to divide our estate equally among our children. The first is to have only one child! The other is to sell off all of our assets and divide the cash. However, this involves selling our business and real estate which is usually what you are trying to preserve. Therefore, we need to evaluate the practicality of trying to distribute our assets equally versus fairly.
For instance, for most dealers, the business represents a disproportionately large portion of their estate. Therefore, if only one of your children is committed to succeeding you, and you are committed to an equal estate distribution, it is likely that you will need to commit that child to having to pay a significant amount to his/her siblings, in order for the estate numbers to be equal. The questions then are, whether the business will be able to generate the profits to pay the siblings and is this fair to the child who is running the business?
In terms of running the business, it is rare when two or more siblings bring the same energy, commitment, work ethic and talent. If this represents your family, is the family expectation that all children will be treated equally in terms of stock ownership? Have you created a false expectation that each child is entitled to his/her own dealership, regardless of performance?
As a parent, I fully understand how easy it is to get yourself caught in the bind of creating false expectations. But continuing to plan your business and estate based on false expectations is a road to family and business disaster. Usually outside advisors are needed to help guide you and the family through this minefield, as emotions can escalate easily when assumptions have been planted years ago and have grown into false expectations and all too often, entitlement. As the dealer quoted in the first paragraph said, “Dad did not like confrontation so he told everyone what we wanted to hear.” The result was family fireworks and broken relationships. Clearly that is not what his father wanted.
If family harmony and business success are your objectives, then it is critical that you honestly evaluate where you stand in terms of the expectations of family members. Usually outside advisors are needed to interview each family member so that a true picture is revealed. Once you know where you stand on these important issues, then a plan needs to be developed sending the right messages to everyone regarding what they can expect for the future of the business and each family member. The choice is yours, “let the kids work it out” and expect family fireworks or address the issues now and realize your expectation of family harmony and your business succession legacy.
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