Pub. 3 Issue 3

19 FALL 2015 Family Enterprises BY SUSAN MORGAN, THE NEWSLINK GROUP I n 2005, the U.S. had about 22,000 dealerships. The Great Recession was hard on business, though, and in 2015, the number is a little less than 18,000. Many deal- erships are family businesses but they are going through a period of profound change. Go to a dealership today, and the person helping you find a car is more of a product specialist than someone to haggle about prices. The Internet has been a substantial reason behind this change, and the change has definitely been good for business. Over a three-year period ending in 2014, the number of dealerships that had upwards of $1 billion in revenue was 21 in 2011 and 43 in 2014. The number of larger franchises is increasing for a simple reason: they offer economies of scale that are not available for smaller franchises. Multiple dealers can save thousands or millions of dollars just by using the same back- office staff in accounting, financing, inventory, and human resources. Throw in the complications of running a family business, though, and the entire process becomes even more compli- cated. As one generation steps away, the next generation has to slip into place as easily as possible while still absorbing all the changes involved in selling cars. U.S. family owned businesses are important to the economy. According to Family Enterprise USA, there were 5.5 mil- lion family businesses in 2011. These businesses make a lot of money: $8.3 trillion of the U.S. GDP, which is 57 percent. Approximately 63 percent of all jobs are in family businesses, and 78 percent of all new jobs are. It’s important to under- stand that fully 35 percent of the Fortune 500 companies are controlled by a family, so saying that a business is run by a family does not necessarily mean it is a small business. Most family businesses last about 24 years, but 40 percent make it to a second generation, 13 percent are handed on to a third generation, and three percent go four generations or more. That’s a dismal showing. If you own a family business and you want your business to outlast you then it’s important to do some succession planning. PriceWaterhouseCooper (PWC) did a survey in 2014 of the decision makers in 2,378 family businesses located in more than 40 countries. The survey showed that most people know they ought to have a succession plan … but, generally speak- ing, they haven’t gotten any further than that. If more companies either had a plan or did a better job of put- ting a plan together, it could be that more companies would then be able to last longer than 24 years, when the original owners decide to call it quits. Having a succession plan for a family business is really the key to helping a business survive. What does a succession plan consist of? Essentially, the idea is to identify key leadership positions within the business and decide who might (with training) be able to fill those lead- ership positions in the future. A plan will ideally set up an authority structure, including roles and titles, and it will also include information about strategic shifts within the business that may be necessary in order to guarantee future business success. There will also be a training period in which those who are being placed in a new role have a chance to thorough- ly learn that role before the preceding generation steps away. How detailed does a plan have to be? There is no one-size- fits-all answer. Small businesses will generally have a smaller plan than a bigger business. However, it is absolutely crucial that the plan be written down. Be sure to consider issues such as taxes and any applicable business laws that could affect the succession. Once it is on paper, make sure people have formal  Family Enterprises — continued on page 20