By Branson Smith, COO, Audientis LLC
The age-old sinister question that no successful business owner wants to face is: What happens to my business after I am gone? Let’s flip that question and in a more positive light ask a more thought-provoking question: What would you do if you sold your business tomorrow?
These are both questions that open the door to a Pandora’s Box in both an exciting way (thoughts of sitting on your boat Grand-a-Copy in the Caribbean with an endless supply of drinks) and a less-than-exciting way (would I have enough money to continue my life style?).
The next step for your dealership may be as simple as a son or daughter who has worked at the store for years stepping in and becoming the boss. While that sounds simple, in today’s world of extreme valuations and complex estate taxes, you must start planning today in order to assure a seamless transition.
Should you fail to do so, rather than leaving behind a thriving business, you will leave behind a mess of legal fees and unnecessary tax burdens, and possibly even open up rifts within previously strong family relationships; not to mention manufacturer issues.
We were recently consulted on an unfortunate case where there was an unclear succession plan in place after the primary Dealer Principal and his successor both passed away suddenly over the course of a few months. The lack of a solid plan left the successor’s widow in a vulnerable position, where she had no idea about the financial performance of the dealership, was not properly compensated for her ownership position, and eventually was pushed into surrendering her voting shares by more aggressive members of her family.
As you might imagine, this was not the solution that her successful husband probably envisioned for her, but in the absence of a clear plan a void opened and was seized upon at the expense of his widow.
The sooner you begin to plan for the next generation, the better off your family will be in the long run. An astute advisor can enact a plan that minimizes your transition tax and estate tax burden. The process of enacting a thorough plan will also force you to examine relationships with key vendors such as your floorplan provider, F&I products and even the manufacturer who controls the franchise.
An experienced advisor can often uncover additional savings or identify opportunities to leverage existing relationships to help facilitate a transaction, especially if the ‘transaction’ is to be completed within your family.
If no family member is standing in line to take over the dealership, your next step would likely involve selling your business to another dealer. In today’s world there is a lot of publicity surrounding the roll-ups being completed by public and mega groups, but the reality is that there are still a lot of successful small groups and single point dealers who may be interested in acquiring your dealership.
In fact, of the 17.5 million vehicles sold in 2015, only 20% were sold by groups on Automotive News’ Top 150 dealers. That means that 80% of the new cars were likely sold by a dealer who at some point in the near future will have to concern him or herself with what they are going to do with their business when they are not around to turn on the lights each day.
At the same time, whether the buyer of your business is one of the mega groups, an emerging mega group, or just a strong regional player, they are going to have professional representation who will not leave a stone unturned in your dealership.
Some questions that you must ask yourself today include: is my business ready for a full-on cavity search? Does your dealership have established policies in place that your employees actually follow? Do you know the terms of your major vendor agreements and more importantly what it might cost you to cancel them tomorrow?
We are currently working with a client who would like to sell his dealership immediately, but he converted from a C corporation to an S corporation only 2 years ago. If he is to sell ‘tomorrow’ it will require a creative buy/sell structure, as well as a patient buyer.
In another case, we were brought in to help facilitate a sale, but in preparing the offering book we found that a General Manager had stolen over a million dollars from the company. In lieu of facilitating a buy/sell, we were left to make significant write-offs and develop a strategy to re-build the business that would hopefully put it in a position to be sold after a few years of stabilized results.
The reality that most business owners fail to see as they go about their day to day business is that going through these processes today will actually help make your business better tomorrow, and even better when the time comes to sell.
Beginning to prepare today will make your business better, put plans in place to save you and your family millions in potential tax liabilities, and best of all help you make more money at the end of the line, regardless the blue-sky multiple that an outsider uses to value your business.
Start planning today and thank yourself tomorrow, even if you don’t feel ready.
Audientis is a financial advisory firm. Through its Learning by Listening™ process it designs a plan to meet client objectives related to succession planning, acquisition, wealth management, and other areas. Audientis then implements the plan at the client’s direction with a comprehensive analysis of the opportunities and transactions available.
Branson Smith, Chief Operating Officer, can be reached at Bsmith@audientisllc.com or 1-770-790-5007
