May 1, 2013
According to the Family Business Institute in Raleigh, North Carolina approximately 30% of family businesses in the U.S. will survive into the second generation. Only 10-13% of all family businesses are successfully transferred to the third generation and for fourth generation the number drops even further to a mere 3%.
“Succession planning is a big issue in the industry right now as many business owners are nearing retirement and wanting to pass on the family business to the third generation,” said Eric Schulz, co-owner of AAA Auto Salvage in Minnesota.
Published by popular web magazine Company Founder, www.companyfounder.com, their article “10 Key Family Business Issues” highlights some of the core family business concerns that also mirror ones those when it comes to succession planning.
Some of these issues include:
• Lack of well-trained and well-qualified future leaders.
• Poor communication between generations and branches of family members.
• No plan for exit and, if not for exit, for effective succession.
• Lack of interest in the family business from future generations.
• No clear-cut mission statement that is understood and bought in on by all family members.
• No representation from management outside of family.
The National Federation of Independent Business (NFIB) suggests that the earlier you start planning for your succession the more chance of success you will have. They recommend starting at least 10 years before you plan to retire.* They give the following tips for successful succession:
• Decide on a Viable Successor. Just because you want your son or daughter involved in the family business doesn’t always mean it’s the best option. They suggest you try to remain impartial and ask yourself if he or she is really interested in taking over the business and also if he or she is really qualified.
• Mentor your next leader.
• Keep employees in the loop. Make sure you communicate clearly your succession plans and even include some employees in the planning process where needed.
• Create a clear timetable for succession. Some dates to nail down include when you will retire and when you will transfer ownership shares.
• Settle on a post-retirement role.
• Coordinate estate planning goals with the succession plan.
Ladies of the Automotive Recyclers Association (LARA) Offers Platform to Discuss Family Issues
The reported figures may be a little depressing but ARA members have already shown that they are among those businesses that not only survive a succession but thrive following one. Many of ARA’s members are second generation successful business owners, who have not only successfully taken over from their fathers, but increased and expanded the business in the process. In addition, LARA has taken an active role in forming a family network group that offers an informal platform at each convention to address family business issues.
“The Family Network Group was birthed after an ARA member suggested we address not just the women issues in recycling, but issues that affect the entire family; in particularly the generational issues that arise,” said Fran Reitman, President of ARA’s Educational Foundation. “There are always issues going on in the family business, especially with retirement and passing on to the kids.
The Family Network Group made their debut at ARA’s 2012 Annual Convention in Orlando. Ginny Whelan and Fran and Randy Reitman facilitated the session, spiked with lively conversation about the challenges members were facing in their business.
Leading by Example
Fran and Randy Reitman are one of the examples of a family business that beat the odds and prospered in its third generation and now they are preparing for the future for a fourth generation transfer.
“Randy is the third generation of Reitman Auto Parts and one of the main reasons the business grew and prospered was due to his passion for the industry and his relentless hard work,” said Fran. “We currently have two of our sons working in the business with us which gives us a lot to think about as we start early to prepare for passing the business to the fourth generation.”
Reitman says that the Family Network Group aims to provide a networking system to provide support as future generations run into challenges.
“For us, during our transition time of taking over the business, one of the biggest hurdles we faced was the computerization of all of our business,” said Reitman. “The electronic age really transformed this industry and we can run our business through our computers in areas we couldn’t before – like buying and selling cars, parts, training, inventory and the list seems to go on and on. I wonder what the next hurdles will be for the next generation?
“I feel that another reason this Family Network Group is important is because we need to keep our industry alive,” said Reitman. “Many yards either close or sell to a large consolidator when they are ready to retire because their children are not interested in the business and there is no one to hand the baton to.”
Cheryl Rash and her husband, Dan, have a long time until they plan to retire but this is one of the challenges facing them. They have two children, who, for the moment anyway, have chosen other careers.
Although the Rashs are first generation salvage owners, their business grew out of the business they purchased from Dan’s father. Blue & Gold Auto Salvage, Goose Creek, SC, started as an auto storage facility providing long- and short-term storage to military personnel, mainly Navy sailors. Dan ended up being the son who willingly stayed behind and ran the business for his Dad and other siblings while they were out golfing and doing other hobbies.
“My husband started tinkering with cars when business would slow down in between the time the ships would come in,” said Rash. “One day my father-in-law (lovingly) told my husband to either clean up all the cars he was fixing and get them out of there or buy the business. So, my husband bought the business from him and the salvage yard started to grow.
“Eventually, as the Navy presence in Charleston was reduced, the auto storage business wound down and the auto parts salvage business increased,” said Rash.
“Today, we have successfully grown to 25 acres and we have a business that we want see continue to future generations. However, we also want it to be something our children desire to do if they take the business over, not just because it’s their parents’ business.”
Besides a lack of interest in the business by future generations, another key family business issue is poor communication between family members or branches of the family. Often, this is accompanied by a lack of clearly defined job descriptions, no exit strategy, and no communicated mission statement to speak of that is understood by all members of the family.
“Good communication is the starting point to all success in family business issues,” said Jim Counts. “The success of any business starts with clear and good communication that all family members and employees can clearly understand and also feel that they have been able to voice their opinions and be heard. This makes it much easier for everyone in the business to enthusiastically be on the same page when it comes to the direction of the business.”
Neil Nissenbaum, of Nissenbaum’s Auto Parts, Inc., in Somerville, Massachusetts admits that clear communication is something that their family business has to continually work on.
“I feel like our biggest challenge with the family business is getting everyone to talk together and resolve certain issues,” said Nissenbaum. “We can talk about anything else without problem, but when it comes to the business it seems like often we just can’t agree on anything. “
Nissenbaum’s Auto Parts, Inc., established in 1910, is currently in its fourth generation owned by Neil’s father and uncle. Neil represents the fifth generation to be passionately involved in the family business.
Nissenbaum says that clearly defined job roles would help the situation and that communication issues slow the overall growth of the business as the industry goes into the future.
“I think that if we had set job roles from the beginning that would make things a lot easier,” he said. “But, years ago when the business started, very few, if any, businesses had clear-cut plans with job descriptions. You just got in, rolled your sleeves up, and started doing whatever needed to be done. The business just kind of evolved around that.
“Today, although we each have certain jobs we do, there is still overlap, due to the nature of the business. I think it would be helpful if we had regular meetings once per month instead of when issues come up. This climate makes change and moving forward in agreement difficult and I think that can slow the business going forward.”
According to Jim Counts, having a third party mediator come in and mediate the discussions between family members can be extremely helpful.
“Selling or transferring the business to the next generation is something that needs considerable thought and planning,” says Counts. “Most people will only do this once in their lifetime and have zero experience in how to accomplish it. This is one area where what may seem like costly advice may be cheap in the long run.”
Doing it Right
Kristin Allen of Grassy Auto Parts, says she thinks that her great relationship with her father, and not having any other siblings involved in the business, helps their family business.
“I feel that my Dad and I have a great working relationship,” said Allen. “I understand him. I do also have another sibling and she isn’t in the business. I think that makes it easier because when you have siblings working together, no matter how close they are, the potential for fighting and power struggles increase greatly.”
Allen says that even with a great relationship and good communication most of the time, sometimes other things can cause a lack of communication.
“I know when it is best to step back on certain issues and when to let my Dad know how I feel,” said Allen. “Sometimes we have trouble with our communication because we get so comfortable with the things that we do that we don’t always fill the other one in and that is just because of a lack of time. Although we work together, there are days when we really only speak in passing! We both have lots of work to be done!”
Weller Auto Parts, Inc. is in its 81st year of business and fourth generation. Skip Weller and his three brothers are co-owners of the business after purchasing the business from their father. Skip says there are several reasons for the success of their business and the fourth generation succession.
“I think there are several reasons our business has experienced pretty aggressive growth and been successful,” says Weller. “My brothers and I each head up different divisions of our business and, although they complement each other and are part of the same company, we work in different locations. I don’t think it would work if we were all under one roof.”
Weller says they have one common vision and each division of the business works towards that common vision. They meet every Monday to discuss issues, share insight with each other, share accomplishments, and give input to each other.
Another key reason for the success of the business has been the employees, says Weller.
“Our employees have played a big, big, part of building our business,” said Weller. “It wasn’t just the family members building the business, believe me, it’s been the dedicated work of our employees!”
Perhaps one of the most important reasons the business has thrived is the attitude that Weller and his family possess.
“It’s important to our family that we remain good friends and have fun together outside of work,” said Weller. “I’d walk away from the business if it’s going to jeopardize that relationship. My brothers and I are all about two years apart in age and we have a strong family relationship that our family feels is important to preserve. As we prepare the fifth generation, we are working with succession advisors to ensure that our children remain best friends and value that relationship more than the business, as well.”
Weller says there are currently two of his sons and two of his brother’s sons working fulltime in the business. To those in the business who are in the stages of preparing the next generation he suggests giving them some room to run with something, starting small then increasing the responsibility.
“I think that it is a good idea to delegate areas or tasks to your kids and let them learn how to handle those responsibilities,” said Weller. “I’m not talking about giving them the whole enchilada all at once, just a few chips to start with, then take it from there.
For me, it’s difficult to let go. If you give them a little bit at a time, it will help you to keep your sanity. It’s also important to let him or her come to you and ask for advice, before you give it. It’s also important to listen to their ideas because when you have given them room to grow they might discover a different path for the business that just might make it more lucrative. If we don’t stay open-minded, then we might miss a great opportunity for our business going forward.”
Lessons from a Generational Co-Owner
Eric Schulz of AAA Auto Salvage, Inc. became a co-owner through his wife, Amy, when his father-in-law, Jerry sold the business to Amy, her brother, Pete Anderson, and her cousin, Chris Anderson.
Schulz says that hands down one of the best decisions they’ve made was to hire a General Manager from outside the family. Patrick McKinney is the General Manager of AAA Auto Salvage, Inc. and all of the co-owners report to him.
“Patrick keeps us on edge and moving forward – he has been a Godsend to our business,” said Schulz. “We still have weekly manager meetings that Patrick runs. We also have owners meetings, that include Patrick and some other employees, where we discuss the direction of the business. We have found that by involving non-family members we keep the communication clear between all of us and the employees.
Schulz says that as with most family businesses, they too have had their share of challenges but working through it made them stronger.
“We went through some pretty serious growing pains and lack of direction that put us in financial difficulty for a time,” said Schulz. “We were faced with difficult choices and I think having worked together as a family through it has made us stronger and now the sky is the limit! We’ve really done an amazing job to turn things around. We’ve had employees who have stuck around with us during the last nine years and played a huge part in the turn-around.
“I think that one of the things I have learned is when you are in a family business, it’s really important to share the load that’s weighing on your shoulders and not try to do it by yourself. I had a tendency to take on issues without sharing information. I felt like I had to do it all by myself. Now I’ve learned to share information and the workload too.”
Schulz says that the challenges they have faced has helped them learn on a business level too.
“The challenges we faced taught us to really monitor our short- and long-term Key Performance Indicators,” he said. “We have learned that a little correction now can make a big difference later.”
Schulz offers another piece of advice. “Work to live, don’t live to work,” he urges. “As owners of business or even as employees, there’s a scary number of people who live to work. A lot of people are working too much and don’t leave enough time for the things that really matter, like our families. When you work a lot of hours it’s your family that suffers. Take time for yourself and your family and nurture what really matters.”
Michelle Keadle-Taylor is a freelance writer in Northern Virginia and a regular contributor to Automotive Recycling magazine.