By Loyd Rawls, CEO, The Rawls Group
As your business vision develops over time, evaluating the option to transfer the dealership(s) to family, key management, or to sell to a third party can be an emotionally draining process. As a successful dealer, passion drove you to make sacrifices and take risks to develop a strong automotive enterprise. Seeing the seeds of your labor that you planted early in your career grow and develop over time fuels your drive for the business.
Overcoming the challenges of running a competitive dealership, feeling the joys of investing and developing people, giving back to the community, and providing a nice lifestyle for you and your family are many of the emotional and financial benefits of being in the car business.
The pro of being the captain of your ship is if you can dream it, you hold the power to make it happen. However; that pro can be a double edged sword. You hold the responsibility to be a good steward of your ship, continually planting and harvesting your seeds such as taking time to mentor and apply accountability to next generation owners to ensure they have the Behavior, Attitude, Skills and Knowledge to take over the ship.
The con arises if you fail to adequately equip your chosen successors – often your children — to take over the business. If the next generation is left to its own devices, you will slowly lose control and the market, manufacturers, competitors, managers, and family will begin to eat you alive and force you down a path leading you away from your entrepreneurial dream.
Let’s look at a case study:
Dr. Merlot and I worked with a dealer for more than 20 years, addressing various issues impacting performance, values, and multi-generational ownership. When we were initially engaged, the owner had a vision for growing the business and ultimately transferring ownership to family member successors. As a result, we focused a substantial amount of effort on the impact family dynamics, governance and successor development had on current and future operations.
Early in our engagement, Doc and I strongly encouraged the owner to change his approach to developing and managing family, and to convince his kids to demonstrate they could do something besides gripe and moan.
To date, we were successful at transferring Dad’s assets to avoid estate tax and helping develop a dynamic management and leadership team, but Dad/Mom wanted to avoid uncomfortable “accountability” moments with their children.
So fast forward to today … on the pro side, the dealer has a high value, 5 store organization; on the con side, his vision of “keeping it in the family” is not an option as he has no family successor and due to a life of enablement, his now-adult children fight and manage money like teenagers. Now, the dealer is left with one option to hopefully save the business and the family – SELL. Next step was breaking it to the family.
This is how it went down.
We joined the family and their CFO, Charlie, in the Board Room. With the room quiet, I started the meeting, “So I presume everyone knows that after protracted discussions a contract has been executed for the sale of dealerships and real estate.” Expecting my setup, Dad followed. “Be it right or be it wrong, I have decided to cash in the chips and divvy up the cash so you can independently pursue your own dreams.”
There were some predictable remarks reflecting both agreement and disagreement, many of them directed at me. Dad sat up in his chair and slapped both hands on the table, “Silence! Back off! Loyd is not the enemy. I made the decision and he’s explaining the consequences.” I sat there in amazement as Dad usually lets the kids chew at my bones. Then, as I began to respond, Doc jumped in.
“I wish all our meetings were recorded. Your Dad finally told you where you stand. Before we get back to what’s on the horizon, allow me to jog your memory going back five years. Surely you recall the Operating Board of Directors meeting where your Dad announced he was giving you guys three years to get your crap together as a team – stop squabbling, keeping score on time off, income, incentive trips, and take responsibility of something. Hopefully you remember the multiple, deliberate private meetings we had with each of you to confirm Reasonable Expectations and the gala we created for the formal adoption of Operating Covenants at NADA.”
Doc paused a moment and looked around the conference table as if to say, “If there’s something you want to challenge, let’s have it.” He then continued, “If that assault on time with the intent to kill doesn’t come back to memory, maybe you recall your dad having a rare emotional moment a year ago, when a year beyond his ultimatum, he told you the game was over; he was not going to pass the responsibility of the dealerships to a group of ‘self-absorbed, teenagers disguised as adults’.
Surely you remember his choice of words which royally pissed you off? So please dispense with your guilt trips; that gig is up. It’s accountability time and unless you want to start making obligations that you cannot fulfill, you had better listen.”
For some additional back history to this story, against my recommendations, Dad always relied on a COO to run the stores and never assigned his kids real jobs. They were management floaters but as characterized by Dr. Merlot, the float was always away from work.
The kids joined the management suit rhubarb around 10:30 and departed midafternoon to pursue personal interests. Although Dad successfully protected his children from missing family vacations or being embarrassed, he also precluded them from being a success.
Facing the reality that the franchisers had said they would never approve his children as successors, I had been advising Dad to sell. Only after his children began to discuss bringing their children into the business did he decide to sell professing; “I am not going to promote the continuation of this crap.”
What to take from this scenario?
As the owner, the effectiveness of successor development, family governance/dynamics, teamwork and performance are all up to you. Taking the effort to consistently plant and nurture seeds – i.e. apply accountability, can sometimes feel like a big drag; however, that is a smaller pill to swallow than having to give up on your business dream.
To ensure you are in the driver’s seat of any buy or sell decision, take a minute and evaluate your financial, management, and family environment; evaluate potential pitfalls; and either personally address or find the help needed to unravel the knots and put you on the path to fulfill your vision.
Loyd H. Rawls, President/CEO of The Rawls Group, has specialized in succession planning for closely-held, family owned businesses since 1973. Well respected in his field, Mr. Rawls is a highly requested speaker and has published numerous articles and publications on this subject such as “Seeking Succession: How to Continue the Family Business Legacy.” “The Succession Bridge: Key Manager Succession Alternatives for Family Owned Businesses,” “Estate Planning Heartburn Relief,” and “Family Business Heartburn Relief.” For more information, visit www.rawlsgroup.com