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Starting the conversation: 6 succession planning tips for dealership owners

Nov 14, 2019

Did you know that the average age of a dealership owner is over 60, yet only a quarter of owners have a succession plan in place?

There are a lot of reasons for it. Number one is that manufacturer franchising agreements often dictate that the manufacturer approve the succession, whether it’s an internal transition to a family member or employee, or a sale to an outside party.

It’s a tough eventuality to face, that one day you’ll no longer be running things. It’s also an emotional conversation to have with family members and/or your key employees. And it’s a long process that can’t happen in a day.

Dealership owners know all these inevitable realities are coming their way with succession planning, so they delay even starting the process.

Have you built a business or a job?

But think about what would happen to your dealership if you experienced an unforeseen event that made you unable to go into work tomorrow. Or the next week. Or the next month. And so on. How well would your dealership do without you there? Would it suffer?

Maybe you’re saying to yourself, yes, it would. You’re an integral part of your dealership. It couldn’t function without you.

While that probably makes you feel pretty good personally, it doesn’t bode well for your dealership’s success and even survival if that situation came to pass. Your legacy isn’t so solid when your dealership falls apart without you. A dealership completely reliant on its owner has little value. You’ve built a great business, but, in reality, you are the one who has all the value.

And if you’re gone, how protected is the dealership? Its employees? Its customers? Your family?

Every dealership will transition eventually. It’s up to the owner whether that transition happens voluntarily or involuntarily.

Creating value

Succession planning isn’t about you exiting the business. Rather, it’s about integrating a deeper level of strategy that builds further value into your dealership.

Do you have a CFO, COO or other C-level executives who have autonomous responsibility for their duties? Do you have a long-term strategic plan guiding the direction of your dealership? Do you have a proven growth strategy and demonstrated scalability?

A dealership must be viable, stable, sustainable and profitable in order to be valuable. And succession planning can help you determine how to go about filling any gaps in those four requirements.

Tips to start succession planning

We already talked about how difficult it can be to start planning. Maybe you’re unsure of how to start the process, or you worry about how to be fair to your potential successors (family members, especially) and not strain relationships. Maybe you don’t ever want to retire. Or maybe the process seems too daunting.

1. Talk to your peers

The number one tip we have to get started is to talk to your peers who have transitioned their businesses (dealerships or otherwise). Find out from them how their process went, what they liked about it and what they would have done differently.

And don’t forget to talk to second-generation business owners who went through the process from the other side. Find out what they wished would have been done differently and what they plan on doing differently with transitioning to the third generation.

Then start talking to your advisors. Financial advisors, attorneys, accountants — every advisor you work with has a good perspective to offer on your situation and how you can not only start planning but also end up with a plan that meets your specific goals.

2. Start now

Don’t wait any longer. This is a process that takes years when done right.

When selling, many owners hold on too long. If you’re thinking of selling, the best time to do so is when you’ve demonstrated strong profitability. When you’re at your peak. You may balk at selling during the best time, but that’s when your dealerships’ value is at its absolute highest and you can maximize your return. (Note that if you’re integral to operations, this will still decrease value, as buyers are hesitant to purchase a dealership that’s primed to fall apart after the owner leaves.)

If you’re transitioning to family or an employee, be aware that you can work out a plan that meets your goals. If you aren’t interested in retirement, you can still, after the actual transition, work with scaled-back duties. This means you can focus on what you truly love about the job and not wear quite so many hats.

But whatever the case, starting the planning process now leaves you with far more options than if you start when you’re actually ready to transition.

Do’s and don’ts when transferring to family

Lastly, we’ll cover the do’s and don’ts when your ultimate plan is to transition to a family member.

  1. Do discuss the process with all of your family — both those involved in the business and those not involved. You can better understand their goals for the transition and can help prevent tension and rifts, since they’ll understand your reasoning for making certain decisions. Surprises are not good when it comes to succession planning.
  2. Don’t put your children’s goals and priorities ahead of your own planning. While you want to understand their goals, you don’t want to put them above your own. It’s your business. Your goals matter. And when you build further value into your dealership, you set your kids up for success while giving yourself peace of mind.
  3. Do have separate counsel and advisors for you and different family members. Everyone has a different situation and different goals, and everyone should have their own guidance and assistance throughout the process.
  4. Don’t make transitioning about age. Understand when your successor actually wants to take over. It’s not about what age they’ve reached. It’s about making sure they’re ready and well-equipped to take over, and you’re ready to either retire or scale back your duties. Don’t transition if they’re not ready.

Start planning now

We’ve said it before: Succession planning is a marathon, not a sprint. The earlier you start planning, the more options you have to take advantage of. The better chances you have of your succession succeeding and your dealership continuing to thrive. The more you’ll be able to protect your dealership, its employees, its customers and your family.

Succession planning is a long-term strategy. Give yourself the years you’ll need to put one in place.

For help getting started, contact the business transition group at Wipfli or your Wipfli relationship executive. Or keep reading on about succession planning and business transition:

Why is succession such a dirty word?

Six trends in dealership valuation

How to modernize your business transition plan

In case of emergency, break glass: Why every business owner needs a day-after plan

Author(s)

Lally_Paul
Paul T. Lally
Principal
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Kevin Janke
Kevin Janke, CPA, ABV, ASA
Valuation, Forensic, Litigation Support Services Partner
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