By John Buelow, Principal, Dealerships, CliffLarsonAllen LLP
To most dealership owners nothing is so worth the blood, sweat, and tears you’ve poured into your business with the prospect of passing it down the family line. Leaving the next generation, a gleaming dealership emblazoned with your name, carries your legacy forward and provides heirs with prestige, income, and opportunity.
It’s the dream of many dealer-owners — but for some it becomes a nightmare.
Family business transitions tend to be fraught with far more emotion and entitlement than non-family transfers. Without tremendous planning and clear expectations, they can sour quickly and lead to family estrangements or failed enterprises or both, even amid loving families who never imagined they could disagree so hotly and completely.
That doesn’t have to be the case. You can pass the business along smoothly and maintain family harmony by fully preparing your successor not just to take over your business, but to love and appreciate it — and all the hard work it takes to make it hum — as much as you do.
Squaring with generational differences
The son or daughter, or his or her spouse, or the niece or nephew you’ve anointed to take over the business is no doubt someone you care for very much and want to endow with great benevolence and opportunity. But you need to be honest with yourself: Has he grown up with a silver spoon in his mouth? Have most things in life come easily to her because of your own success? Has she witnessed firsthand the sacrifices and hard work that have made your dealership what it is today — or is that yesteryear’s tired lore, like stories of walking to school in the snow uphill both ways?
Most grown children don’t quite understand how you’ve bled, perspired, and cried to get where you are; they’ve typically only reaped the rewards. Every generation has a different work ethic than the one that came before it — not necessarily better or worse, but certainly different. When you first started out, you probably labored from dawn to midnight, and you scrimped and saved and snacked on Spam to make ends meet. Younger Gen Xers and the whole range of millennials generally expect the corner office, the flexible schedule, the sushi, the wine cellar, and the lake place right out of the gate. They don’t always accept that these are hard-won prizes that come after decades of work.
This is where most problems begin to arise in ownership transitions of all stripes, but especially when families are involved. Parents handing down their cherished business begin to feel their gift isn’t fully appreciated and that their life’s work will be squandered in less knowledgeable and responsible hands. Heirs resent the fussiness and old-fashioned ways of their benefactors. Opinions differ wildly, and tensions mount. It can go downhill fast from here.
But you can steer clear of this impasse by rigorously preparing your successor for the job ahead with practical experience and plenty of hard work.
Grooming your successor externally
Before you bring your successor into the comfort and familiarity of your dealership, send him out into the cruel, cold world to learn the ropes beyond the shelter of coddling arms.
- College education — A degree is non-negotiable these days. College isn’t exactly the cruel, cold world, but higher education prepares a future business executive with essential skills. Make communications, accounting and finance, marketing, and general business classes part of the core curriculum.
- Experience outside the industry — After your successor gets a degree (or while attending school), she should find a job outside the dealership business. Applying for work, being interviewed, competing for positions, and seeing firsthand how the workaday world functions is invaluable experience. It’s important that this job isn’t handed to her; it should be pursued and won by her own merits.
- Industry exposure — With some general work experience under your successor’s belt, it’s time to learn the dealership industry, but not yet under your roof. Look for internships or positions with original equipment manufacturers (OEM) that produce the products you sell. You probably have friends in the business who can take your successor under their wing for a time (and you might offer to return the favor). Look to dealership associations and trade groups for any available learning opportunities and experiences. Or how about selling cars for another dealership group for a spell?
Coming through the ranks of your family business
Once your successor has earned his degree and become immersed in the industry, it’s time to bring him on board — in an entry-level position. Resist the temptation to don him with yet-undeserved titles simply because you share a name. The future owner of your business needs to understand operations from the ground up and within every department of the dealership — new and used vehicles, finance and insurance, service, parts, administration, the whole gamut.
When he has sufficient experience at your dealership, you can begin preparations for ownership. Bring him with you to important meetings and events and show him the ins and outs of OEM dynamics, among other critical duties. Begin instruction in owner-level responsibilities such as income statements and balance sheets, banking, vendor relations, real estate transactions and management issues, the subtleties of capital expenditures — everything you do that you want him to do capably after you’ve exited the business. After that, perhaps enroll her in the NADA Academy program or have him participate in a 20 Group.
The combination of higher education, work experience both in and outside the industry, and exposure to your dealership from the bottom up should help your successor appreciate the gravity of her new role. With this deep understanding and personal investment comes a shared love of the business that bridges generations.
Contingency plans
Sometimes, even with all the education and preparation you can possibly offer, an intended successor simply doesn’t have the capability to run the business. It can be deeply disappointing for everyone, but it doesn’t have to end with resentment and estrangement. You have options:
- Strong support system — You can surround your heir with savvy senior leaders who function as advisors, reliably lending the business chops necessary to keep the dealership successful and profitable while retaining family ownership. Your successor would have limited responsibility in this arrangement.
- Governance accountability board — If you don’t have confidence in your successor’s judgment as an owner, you can keep him in check with an oversight board that would negate any poor decisions or unwise moves.
- Community liaison role — I’ve seen some owners’ relatives function as family representatives of the business. They have a gift for building relationships and interacting with people in the community. They attend the golf tournaments you sponsor, show up for photo opportunities, host important customers at ballgames, go to chamber of commerce events on your behalf, you name it. If your heir has this talent in greater abundance, why not use it?
- Pay to stay out — If all else fails and money helps keep the peace, spend it. Your son, daughter, niece, nephew, or in-law depended on an inheritance in the business. You can cash it out and look for successors elsewhere.
Obviously, any of these alternatives requires more planning and special contractual arrangements with plenty of provisions to protect your interests. You’ll want to secure objective outside counsel for consultation and to draw up extensive agreements.
In all cases, it’s as important to safeguard family relationships as it is the future of your business.
How we can help
CLA’s dealerships industry professionals have helped countless owners pass their businesses down from one generation to the next. We know how personal and emotional family transfers can be, and our people help negotiate even the most sensitive family transactions. We work closely with you to design a succession plan that addresses your business and personal goals, reduces anxiety, and provides financial peace of mind.
CliffLarsonAllen LLP offers wealth advisory, outsourcing, and public accounting services to help clients succeed personally and professionally. John Buelow is a dealership consultant with CLA focusing on people, process, and profitability.
He can be reached at john.buelow@CLAconnect.com or 612-376-4828
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