Several years ago, Councilor, Buchanan & Mitchell’s (CBM) dealership team participated in a survey of clients and other business owners in the industry and found that many dealerships have been pushing succession planning back by more than 5 years. Furthermore, nearly 50 percent of the dealerships that participated in the survey admitted that while succession is important, they haven’t dealt with it yet.
Despite the passage of several years, CBM decided to share what we still believe to be critical steps to business transition planning, whether you are already actively thinking about this complex process or have not yet begun to do so. The survey results and this 2022 update are intended to address the unique challenges auto dealers face with succession planning and uncover why it can take a backseat for so many auto dealers.
If you’re the owner, executive or manager of a dealership with a significant stake in the long-term viability of your business, read on.
Business Transition Planning in 3 Steps
As an auto dealer owner actively engaged in the daily running of your business, it is very likely that you struggle to find the time to dedicate to transition planning. Our survey findings echoed this struggle and identified that the number one inhibitor to succession planning is timing.
Business owners who put off succession planning until retirement often find it is too late to design and implement a plan to accomplish all of their goals in their retirement timeframe. For instance, an ownership change must be approved by the manufacturer – not being prepared for this requirement can delay or alter the transition process and your retirement plans.
Starting the transition process early will help you mitigate potential roadblocks and provide you with ample time to identify and groom the right successor. Depending on how you plan to transfer your company, there are a number of preliminary steps that you should take to ensure that your succession plan is executed the way you envisioned it would be. This is especially true if you plan to transfer your company internally to existing or future employees.
We recommend a 3-step approach to proactively plan and manage the successful transition of your dealership.
Step 1: Identify a successor & develop an exit strategy.
Start by identifying whether you have employees who have the skills or the potential to acquire the skills necessary to take over the company. Determine whether you will transfer ownership internally to existing or future employees, or maybe even a family member. Assess both technical skills and leadership potential; this will help you decide if you need to search for someone from the outside to augment your management team. Once the individual or group of individuals is chosen, you’ll need to start grooming them into future leaders.
The objective of this first step is to understand the personal desires of the business owner(s) and then define the right strategy and timetable to transition the business. It includes:
- understanding personal and business goals,
- establishing realistic value parameters,
- understanding the drivers of business value,
- defining the requirements of successor managers and owners,
- analyzing the gaps between the current state and the desired outcomes
- and identifying potential roadblocks to a successful transition.
Step 2: Develop a transition blueprint.
Developing a detailed plan for transitioning the business involves collaborating with the company’s team of advisors to create the right solutions to successfully execute your strategy. It is never too early to start planning for the succession of your dealership. Because this process can range from a few months to several years, it is important to define your goals and allow sufficient time for implementation sooner, rather than later. Your blueprint should include:
- a transition plan (the right legal vehicles & tax structure),
- an organization plan (the right people, in the right jobs, with the right tools and processes),
- a compensation plan (methods to retain critical talent and compensate contributors),
- a funding plan (the best way to fund the transition and protect the proceeds)
- and a contingency plan (designed to protect assets from unplanned events).
Step 3: Implement the plan.
One of the most important steps an owner can take is to impart as much knowledge as possible about the dealership to his/her successors. Transferring knowledge can be one of the most difficult parts of the succession process, but it is also one of the most vital. As a transfer of ownership gets closer, some dealerships may find benefit from bringing in a third party to continue to develop leadership skills for transferees. A good implementation process includes:
- managing the implementation project,
- coordinating the team of professionals,
- creating the legal entities & documents,
- developing the organization processes and systems to ensure a successful business transition,
- preparing the business for due diligence
- and consistent monitoring of the progress against the objectives of the owner.
The transition process is a team effort that will require input from multiple people and advisors. Creating a detailed plan to ensure your dealership remains profitable and successful after your departure is one of the most important steps any business owner can take. We can help turn your informal discussions around retirement and succession planning into a formal, documented plan.
For more information about success planning for auto dealers, please contact John Comunale or Keith Laudenberger via our online contact form.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
