Family Harmony or Fireworks

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. Uncommon, no. Having worked with auto dealers and their families for 27 years, I have seen many family businesses become family heartaches.

It needn't be. Avoid these landmines.

False work expectations

Since you were highly motivated and did what you had to do to succeed, you may assume that your children will do the same. 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. Since they may be paid and promoted regardless of their productivity, a false expectation is created that they are succeeding and are entitled to be your successor.

Unless your children have shown themselves to be capable leaders, they are likely to be counted among the dealer casualties once you are not there to prop them up.

False reward expectations

Dealers often utilize the business to cover family perks, such as cars, gas, group medical and pay above and beyond services rendered. 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 because dad has always run the dealership as a “family business.” One frustrated dealer told his father, “Dad, this is not a family business, it is a father-son business!”

False equal-treatment expectations

Most parents spend a great deal of energy trying to give each of their children the same amounts of everything, whether holiday gifts or opportunities. This becomes a problem when we transfer our dealership within the family.

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 second 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 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, will likely need to commit that child to having to pay a significant amount to siblings, in order for the estate numbers to be equal.

The questions become whether the business will be able to generate the profits to pay the siblings and if this is fair to the child who is running the business

It is rare when two or more siblings bring the same energy, commitment, work ethic and talent to the business. Is your 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 an equal share, no matter what?

As a parent, I fully understand how easy it is to get caught in creating false expectations. But don't plan your business and estate on those. The dealer mentioned in the first paragraph said, “Dad did not like confrontation so he told everyone what we wanted to hear.”

If family harmony and business success are your objectives, 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 and a plan developed, sending the right messages to everyone regarding what they can expect. That's better than letting the kids work it out.

Certified Financial Planner Hugh Roberts is president of H. B. Roberts Co. He's at 818-610-3480 and [email protected]