Most dealer principals have worked diligently for many years to build value in their dealership. The dealership has become a large aspect of their daily lives. It’s in their blood! Many still play a large role in the daily operation and would find it difficult to give the helm up to anyone, including their children.
In the current environment, we have seen a lot of activity in transactions of dealerships, driven by a multitude of factors. I receive calls weekly from industry colleagues who are inquiring about the feasibility of finding a buyer for a dealership they are advising. My general questions to the caller are directed to learn more about why the principal is interested in selling, how prepared is the dealer to complete a successful transaction, and have they properly “prepared” their business for transition to a new owner. Often there are gaps in the response and I learn that there is work to be done in preparing the dealership to be marketed to obtain the optimal value for the dealer who has spent his or her career building. Most dealerships are “family” businesses and data tells that less than 50 percent are successful after transition to the next generation.
Having been involved in planning for succession and completion of dealership transactions for many years, I find that many aren’t ready to sell or are reacting to an issue with involved family, such as an unplanned health crisis, family dispute, desire to step back from day-to-day operations, or a dispute with their OEM partner, just to name a few. I have identified common problems encountered when it comes time to get serious about transforming or exiting the business.
The most common mistake made by dealer principals in succession planning is procrastination. Postponing the preparation for succession of your business is delaying the inevitable. Initiating the process of planning for succession could ensure that the benefits of your hard-earned efforts is enjoyed by you and your family for many years to come.
Just think of the outcomes if you procrastinate any longer:
· There may not be enough time for the transition to the next generation to be successful.
· Your survivors could be left with preventable and unwanted complications after your inevitable demise.
· You may lose the value of your dealership that have taken years to build.
· Your business could fail, leaving you and your family with completely nothing.
Initiate the Process
If you initiate the process now, you could avoid mistakes made by many. You should:
· Recognize the need for sufficient planning
· Ensure that the next generation is involved in the business planning process
· Ensure that the next generation is properly trained and has mastered the management and are capable and effective leaders of the dealer business
· Address any issues with involved family or key management, such as sibling rivalry or questions of what their future roles will be going forward
· Ease successors into their role in the dealership instead of just dropping them in or “anointing” them the next dealer
· Understand the difference between guidance and interference with the development of your successors
· Include key managers in the succession planning process and be very clear about future roles relative to family members
· Make sure performance objectives are in place as you develop new management, including consequences for not meeting objectives including removal from the intended succession
· Proper coordination and of ownership and management transfer depending on your specific situation
· Create a family council to meet and handle decisions from both the business and the family’s point of view
These are just a few of the areas which are often not addressed when dealing with business succession. More importantly, most dealer sales and service agreements stipulate that any successor, whether for the management or for the ownership of your dealership, must be approved by the manufacturer before any changes occur. The process to obtain this approval can be a lengthy one, depending on the manufacturer.
When developing a succession plan, you should ensure that all the issue stated here are addressed. In short, a good succession plan should focus on the transfer of the estate to family members — if that is the intended plan, the succession of management responsibility, establish the future strategic direction of the business and that funding for the transfer of the business is in place.
Planning for succession is not something that should be done without consulting with your business advisors. Your business advisors can help bring an objective point of view when family differences or disputes arise. Remember, it’s never too late to start planning. Have you started planning for succession? If so, are you on track to ensure you and your family benefit from all your hard work?