News/Publications

Making the Family-Owned Dealership Work

August 18, 2017

Family comes first, as the saying goes. But when your auto dealership is a family-owned business, your scope does not end there. Family-run businesses face a host of concerns (as well as benefits) that non–family-owned businesses don’t encounter.

What’s the upside?

Family dealerships work with people they know, love and trust. This is often a blessing: The business provides job flexibility and security for loved ones while building a legacy for future generations.

The concept of “family” also creates goodwill inside and outside the store. Employees like to feel as if they’re part of a family — whether they’re actual relatives or not — rather than an impersonal company. In an age of cookie-cutter retail chains, customers also like the personal touch a family business provides.

What are the hazards?
But owning a family business can also have a dark side. Quarrels between parents and siblings (or other relatives), nepotism and complacency are just some of the perils family dealerships face.
A family-owned dealership prides itself on being flexible and informal. But it’s still a business. Like other dealerships, family-owned stores must have in place strong organizational processes to be successful. Written job descriptions, fraud training, internal controls and strategic planning are just a few of the conventional, but important, business practices that every dealership needs to promote and maintain.

But a family business isn’t all warm and cozy for everyone. Working for a family business can be highly unsatisfying for unrelated staff if they’re treated like outsiders. When nonfamily employees are routinely overlooked for promotions or grossly underpaid, they may harbor resentment and possibly jump ship — driving up your hiring costs.

Ask yourself whether each family member worker is truly qualified for the job that he or she holds. Too often, relatives are given the titles — but not the genuine responsibilities — of their positions.

What about compensation?

Fairness and objectivity are challenging when paying relatives. Compare the compensation packages of family and nonfamily employees. When relatives dominate the roster, you may be unfamiliar with current hourly pay rates and commission structures. Don’t be afraid to ask other dealers what they’re paying unrelated workers for similar positions.

Beware, too, that the IRS may be watching how much you’re paying related parties, including perks and excessive dividends. It wants to ensure that compensation is commensurate with the individual’s contribution to the dealership — not merely a way to shelter income from corporate-level or payroll taxes. The IRS also watches loans and rental payments to and from related parties. Your accountant is a good source for reasonable compensation data, as well as for input on other issues that may arise.

Who will lead in the future?

Many dealerships fall apart when the second or third generation assumes control — often because the owner unexpectedly dies and his or her successor hasn’t been properly groomed.
Effective succession planning means establishing a plan for gradually delegating and relinquishing control in function, not just form. When prospective successors are given the opportunity to fail, they’re more likely to demonstrate whether they’ve got what it takes to carry the torch. If things aren’t looking good, your succession plan can divert to an alternative strategy, such as selling to an unrelated employee or an outside party.

A good line of communication

A succession plan is a necessity even if handing over the reins to the next generation — or to someone outside of the family — is a long way off. In the meantime, make sure to communicate your dealership strategies clearly, to family members and non–family members alike.

© 2017