While there are many considerations in running a thriving dealership, one of the most important – and often overlooked – is developing and maintaining a succession plan. A strategy that allows for the transfer of ownership to the next round of leaders – whether family members, a trusted partner or an outside buyer – will position you and your business for future success.
Having a succession plan is important for many reasons; however, in today’s environment, there are three crucial reasons that rise above the rest.
- There’s a lot of buy/sell activity in the industry and accelerated consolidation. If your long-term plan is to exit the industry, you should consider the current market valuations and buyer interest.
- The U.S. is on the verge of material changes in tax laws that could affect your finances and the value of your business if passed on to future generations. The estate and gift tax exemption, currently at a historic high of $12.06 million per person or $24.12 million per married couple, will drop by half in 2026 when the current tax law lapses. It could drop even faster if Congress passes a new law before 2026.
- The market, labor costs, supply chains and other factors influencing dealerships continue to fluctuate. As the pandemic brought home to us, every business needs a plan in place in case top leadership can’t run day-to-day operations.
Consider your priorities
To begin the succession planning process, you need to identify your goals. Perhaps you’d like to sell – to family, management or a third party – to generate liquidity. You may also want to maintain some level of control of the business, particularly during a transition, if you’re gifting or selling the business to family members or selling to trusted employees. Or, you may want to step away completely and allow a third party to take over.
In addition to identifying your goals, it’s important to consider how your decision will affect employees and the community to assess whether your actions align with your goals.
Finally, you’ll want to consider the financial implications of your decision, whether it’s reducing the amount of taxes you pay or generating liquidity for future needs.
Identify key players
One of the most critical succession planning decisions is determining the organization’s future leadership. While it can be difficult and emotional to talk with family and key managers about the future, it’s an essential piece of the process. An honest talk about your goals and theirs will help clarify your options and develop a more realistic succession plan.
Facilitating the process will be two crucial teams: internal and external. Your internal team will consist of key family members, senior dealership managers, your banker, lawyer and accountant. Your external team will consist of advisors who think broadly and are strategic and defensive, like a transition attorney, estate lawyer, investment bank and appraiser or auditor.
Maximize the value of your dealership
Once your team is in place, you’ll want to get your documents in order. These include:
- Financial and business information. You should pull out your business’s financial statements and consider conducting an audit if you plan to sell the dealership. An audited statement is a more powerful statement to share with a prospective buyer.
- Updated appraisal. An appraisal will compare your business to other dealerships, their gross margins and growth rate. Key metrics are important, whether you’re selling or benchmarking the success of your business for future managers.
- Strategic plan. It’s an excellent time to create or update the strategic plan for your dealership. It will help you look at your dealership in the context of how the industry is changing and evolving. Opportune times to update your strategic plan include any time you experience changes in your family situation or senior management team.
Initiating a succession plan can be emotional, and the process will take time. However, once you get started, you’ll find relief in clarifying your goals, understanding the intent of your family and senior managers and creating strategies that maximize the value of your business and legacy.
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