WHY OPEN COMMUNICATION IS KEY TO SUCCESSFUL ESTATE AND SUCCESSION PLANNING IN THE CAR BUSINESS
It has been said that a little information, when misunderstood, can create big problems. This is never more true than when dealing with the value of one’s estate and sibling rivalry.
As dealers we like to be optimistic. Many of us have shielded our families from some of the harsh realities we face, day in, day out. Although this might seem quite unselfish at the time, in the end, this “shielding” can create misunderstandings which cause serious family problems come estate planning time.
When it comes to estate and succession planning, open and honest dialogue has no equal.
DIFFERENT PATHS
Lets look at the case of Mike and his family. Mike is currently 82 years old and in poor health. His daughter Sparky stepped in some 30 odd years ago to help dad run the family dealership. All three of Sparky’s siblings chose to attend university and went on to develop good careers outside of the car business. Sparky, on the other hand, took up the family flag and has carried it willingly for many years.
About 20 years ago, Sparky began to buy shares in the dealership at fair market value. Today Sparky controls the common shares, but through various estate freezes over the years, Mike still has voting control. The dealership leases the land from Mike’s real estate holding company and of course Mike has many outside investments.
Over the years, Sparky’s siblings have been the beneficiaries of Mike’s generosity. Demos, gasoline and insurance were always provided by the dealership, family vacations paid for and Mike was always there when his children and grandchildren needed financial help.
Over those same years, Sparky has had to guarantee bank debt, borrow additional funds for leasehold improvements for factory image upgrades, adjust her salary to the economic realities of the times and so on — steps we all take as entrepreneurs and auto dealers.
With Mike’s age, Sparky’s siblings are now getting involved in their father’s estate plan, with the best of intentions.
At Sunday dinners, dad has always spoken in the highest of successful terms as to how great the car business was and how successful their family was as a result. It had proven to be the “cash cow” for the family over the years. As innocent as these conversations over wonderfully home cooked meals can be, the siblings formed an impression of the value of the dealership business that was unrealistic and quite honestly, drove Sparky nuts.
PERCEPTION VERSUS REALITY
With their professional backgrounds, Sparky’s siblings have had opportunities that Sparky has not and she was always, deep down envious. On the other hand, Sparky’s siblings were envious of Sparky for “getting” the family business and all the perks that go along with it. Although Sparky has paid for the common shares through her own hard earned efforts, her siblings have always thought that Mike had given Sparky a break at their ultimate expense.
The reality is that the dealership has not been doing well for sometime. Sparky has put her heart and soul into keeping it profitable, working bell-to-bell six days per week keeping both the factory and the bank at bay. Sparky’s salary today is about 20 per cent less that it was five years ago and her debt burden has increased. She is regularly awakened at 3 a.m. by the stress and responsibility.
The situation describe above is actually quite common. And is not unique to the car business, but is common to family business. In most instances, non-active siblings carry an over-inflated perception of business value regardless of the industry in which the business operates. This misconception, in most cases, is not caused by the lack of communication itself but rather the quality of that communication.
I have seen too many situations where assets have been sold to satisfy the demands of non-active siblings. In our example, if, Mike had held periodic family meetings to openly discuss the value of his holdings and the details of his ultimate plan to deal with the ownership of those holdings, perhaps the stresses of today, and potential issues down the road, could have been avoided.
Keeping your executors, trustees and beneficiaries informed on a regular basis is critical to a smooth and successful estate plan. Regular basis is a key term here. As we all know business changes regularly — opportunities arise and on the other side of the coin, challenges continually present themselves. These opportunities and challenges always have an impact on the family business, especially when it comes to brand and location value. It is at these times that true information must be shared.
HELP IS AT HAND
Not all families can work through the intricacies of estate plans on their own. Fortunately, there are facilitators who can help. These facilitators can help the parents work though and clearly articulate their desires. They can also work with all siblings and in some cases non-family managers involved in the business, to manage their expectations.
One point I would like to make is that family meetings to discuss business should be run like business meetings. Agendas should be issued and followed, discussions controlled and minutes taken. Off-site locations, in my experience, work better, be they at the family cottage or camp, hotel or vacation destinations.
It’s important that everyone steps outside of their daily lives and devotes the proper time and attention to give these discussions the focus they deserve.
I have run across two good books recently that you might be interested in reading. The first is Every Family’s Business by Thomas William Deans Ph.D. and the other is Leaving a Legacy by David C. Bentall. Both approach the family business from different angles and offer readers some very sound and sage concepts to help through the decision making process. The CADA Dealer Succession Planning Guide also contains some very useful and valuable information.
Developing an estate plan is a difficult process, emotionally, practically and legally. Full information must be shared with those ultimately impacted to avoid the potential disasters looming on the sidelines.
