By Kendall Rawls, The Rawls Group
The changing landscape of the auto industry combined with the gap in leadership is increasing the complexities of an already complicated business. With this comes many questions for dealers concerning remaining competitive and profitable as well as the question of succession. Better to sell or to grow? Both options require planning and preparation to position the business to sell for the highest dollar or position the leadership, management, and culture to grow and succeed through the next generation. As you debate the sell or grow conundrum, start by asking the following questions:
What do the current and future market situations look like?
- What does the current and future market situation look like?
- What growth am I most drawn to, market share or acquisition?
- What does life after the sale look like (for the owner, spouse, next-generation)?
- How do I preserve harmony & protect business success for family and employees?
The questions above only scratch the surface of key issues that must be addressed in considering the future of your business. If you are looking to looking to grow or exit, the surge in M&A activity provides great opportunity for dealers who may lack a talent pool of upcoming generations who are ready and willing to take over the business. Effectively integrating the above questions into your strategy can be difficult even with a valuable business and good manufacturer relations.
In addition, you have to be mindful of three key areas dealers often overlook in a M&A transaction which revolve around people, operations, and information technology. To dig deeper in this complex conundrum, we asked partners at OWL Automotive Consulting, a firm with more than 75 years’ experience solving the hard issue ranging from Human Resources, Payroll, Information Technology, Operations and Accounting.
People and Talent – Potential Pothole: Not Engaging HR Early
Human resources specialist Renay Winston says an important pitfall to avoid in an acquisition is not getting HR involved early enough in the transaction. Specifically, he says that there are many decisions regarding identifying key employees, compensation, benefits, retention strategies and others issues that can impact the integration plan.
One key area that gets overlooked is understanding the cultural differences between the two companies. Culture should be placed at the center of integration strategies and creation of a positive atmosphere of change should occur before initiating any consolidation of people and processes. Companies can minimize the personnel upheaval by considering the impact of cultural factors and putting steps into place at the beginning to align organizational cultures and values.
Engaging your HR team, or an HR consultant, early on will help identify and minimize risks and reduce wasted time during the transaction. Engaging your HR team or advisor early in the process will also ensure you are protecting your people post-transaction when you are no longer the dealer owner.
Operations – Potential Pothole: Policies, Controls and Documentation Reviews & Web-based Program Audits
Tom Olney, who specializes in operations, shares 2 key areas of operational controls of which dealers need to be mindful. First is reviewing your policies, controls and documentation on all vendor agreements. You should have a policy that only the most senior financial officer or executive can agree to terms with any vendor. Additionally, your policy should state that no department manager should ever be allowed to bind any agreement for the business. Not doing so can expose the dealership to auto-renew or long-term contracts or those with unreasonable termination clauses, none of which are in the best interest of your organization.
To control this important area, create a master vendor spreadsheet and include data columns to capture the important information related to your vendor and contract. Examples Olney provided include vendor name, date of contract, contract term, product or service provided in the contract, and notice requirements to terminate. Having this master vendor roster will allow you to see where you could benefit from vendor negotiation and consolidation to save money. Furthermore, should you acquire another dealership or sell one our your existing stores, this list will be an invaluable tool.
The second pothole Olney shared from the operational perspective relates to your web-based programs. For example, you may have tight control over your DMS user security, but do you have the same controls over your other web-based programs? Olney has witnessed many dealers with “add-on” programs over and above their DMS systems (i.e. CRM, service appointment program, UC inventory management program, credit application software, DealerTrack credit system, manufacturer programs, etc.). As he explains, every web-based program used has a stand-alone User Administrator function to maintain the security of the employees who have access to that one system. If you are like most dealerships, there is not a master list of your employees and the systems they have access to, and to what level. This is important because most of these programs contain customer information, financial data or pricing information on all of your new and used inventory.
To test your current system, do an audit of your web-based programs. Select five of your add-on programs in your dealership and have the administrator print the current user list. Then, compare it with your current employee roster to determine how many ex-employees you find. Olney emphasizes that none of your ex-employees should ever have access to any of this data for any reason. If the audit reveals any ex-employees, then it is time to put a company-wide system in place to control both adding and deleting users.
Information Technology (IT) – Potential Pothole: Increased and Unnecessary Expenses
Sally Lopez, who specializes in the assessment of IT controls, DMS contracts and DMS invoicing review, shares two key IT areas dealers should be proactive in: reviews of long-term IT contracts and software licensing. She reminds dealers that this is important whether they are in the market for buying/selling their store or simply want to decrease expense and synergize processes.
When looking at the long-term IT contractual obligations, Lopez shares that most IT vendors (i.e. DMS, telecom providers, web-site hosts) have long-term contracts with specific termination and notice clauses. What this means is that dealers are locked in for a long period of time, which leads to increased costs to the organization, and an inability to synergize processes across the organization.
To avoid this, you should conduct an analysis of your long-term contracts as they are approaching the mid-mark of their term and work to negotiation a shorter-term commitment or a new contract with better terms. Lopez says that by taking this step early in the contract life, you may be able to reduce your costs or create a vendor bidding situation that will allow you to negotiate a better rate with your existing vendor or migrate to competing vendor to reduce costs. If neither is successful at the mid-mark of your contract, you will at least set the stage for a better negotiation at the end of your contract.
The second pothole from the IT perspective is in the area of software licensing. With the advancement of technology, computers are deployed to almost every employee to utilize in the completion of their day to day job duties. Each one of these computers requires some software licensing, yet many dealers fail to purchase the required licensing and or fail to maintain proper documentation of these licenses, thus exposing the operation to potential fines for unlicensed copies of software deployed on the end users’ computers.
To avoid this, the organization needs to complete a review of all PC’s and related licenses to determine what licenses need to be purchased. Additionally, a system needs to be put in place to track user changes and the addition and disposal of PC’s to maintain legal software licensing.
Succession is all about predictability of ongoing profits. Whether the decision is to sell or grow, profits are critical to the long-term plan. Dealers considering selling or growing as part of a succession strategy should take time to think about and discuss with an advisor the potential, possible and probable contingencies impacting their long-term vision. Even if you are not engaged in succession planning, the key questions and common potholes above, if not paid attention to, will create risk and exposure, expand costs, and prevent your store(s) from running as efficiently as possible.
For more information on OWL Automotive Consulting visit http://www.owlautocs.com/
Kendall Rawls knows and understands the challenges that impact the success of an entrepreneurial owned business. Her unique perspective comes not only from her educational background; but, more importantly, from her experience as a second-generation family member employee of The Rawls Group – Business Succession Planners. For more information, visit www.rawlsgroup.com or email firstname.lastname@example.org.