Why do I need a succession plan if I’m going to sell the dealership?

By Dan Schneider, Rawls Group

If you plan to sell your dealership, some would say succession planning is a waste of time, emotional energy and money. They might be right. However, I would encourage them to talk with Jay (not his real name) before they make a final decision.

We had been talking with dealership owner Jay for several months about his vision for the future and engaging in the succession planning process.  “My children have no interest in the car business,” he told us. And, since he had no brothers, sisters, or other generational family members involved or interested in the business, he saw no practical value in succession planning.  It was simple, he was going to sell the dealership.

Just a few weeks ago, Jay called. After the customary social exchanges, Jay said “I have to tell you what happened to me yesterday. Since we talked last,” he began, “I’ve been approached by one of my competitors. Things started off innocently enough with some general conversations about exit strategies. One talk led to another, and then we began to get serious about me selling the dealerships to him. After a couple of meetings, I was beginning to get excited about the idea. We agreed to meet to start talking about price.

“When he showed up with his advisor, one of the first questions was ‘Can you tell us about the succession planning work you have done?’ I began sharing with pride about my estate plan, but the prospective buyer quickly interrupted me and asked ‘What about your business? I’m interested in the planning you have done to ensure the predictability of earnings into the future.’

“In a confused state I replied, ‘I haven’t done anything beyond basic estate planning, I’ve been planning on selling my business and figured anything else was a waste of time. Why is a business succession plan important to you as a buyer?’”

“Well,” he replied, scratching his head in disappointment, “I want to be sure you are not the critical ingredient to the dealership’s success.’

Asking about a succession plan is a simple way of asking you about a number of areas critical to business success including but not limited to:

• Key manager motivation and continuity – do you have managers who have the capability to lead the business in your absence, are they loyal to you and so will leave once you sell the business, what are their retention and motivation structures, who owns or who should own stock based upon their impact on the business.
• Strategic Planning – what is the strategic vision of the organization, mission and core values? Will I pose a culture shock and impact business productivity?
• Business Performance – how is the business performing related to industry benchmarks?
• Management Synergy and team work – how do department managers work together? Is their silo management or do they collaborate and problem solve towards organizational goals.

“Essentially, without you at the helm, does the business have what it takes to be successful, and if not, how much investment am I going to have to make to get the ship on course?” asked the potential buyer.

I replied, “I suppose I missed the mark on what ‘succession planning’ means and have some work to do.”  And then for all practical purposes, that was the end of the conversation.

Then there was a long pause. Right before I was about to say “You still there?” he continued, “Tell me again how succession planning adds value to my business.” And, as the saying goes, the rest is history.

The rest of the conversation with Jay focused on the primary reasons why succession planning adds value to any business. Here are the key points to keep in mind:

1. Well-designed succession plans include a Strategic Plan that becomes an internal marketing tool. By involving your Very Special Key Managers, you can strengthen Management Synergy and Teamwork, ensure Leadership Continuity, and boost Business Performance. These three outcomes build the value of your business and make you more attractive to prospective buyers.
2. The government believes that it is entitled to 45% of your estate. Use estate planning to drive that percentage as low as possible. Even if you have no heirs, your estate will more than likely have beneficiaries, charitable or otherwise. Understand the value you have created and maximize your legacy endowment.
3. A good succession plan is at least bi-focal: Family and Business. So, it’s more than wills and trusts. The business focus can free your time for other pursuits that deal with activities that now give you more pleasure, enjoyment, and satisfaction than the business.

If you find yourself wondering, “If I’m considering sale, do I need a succession plan?” the bottom line answer is YES, because succession planning builds business value. Prospective buyers, banks, Wall Street and estate tax auditors all recognize that business value is dependent upon the predictability that the earnings will continue after a transfer of ownership occurs, whether by sale, gift or estate bequest.

These same parties also understand that value is not all about today’s earnings. Any improvement you can make in the 10 different perspectives of the Succession Matrix® will build value in your business. Ultimately, the work you do in building a foundation today for the success of tomorrow, builds value and will put more cash in your pocket when you sell the business.

Dan Schneider, M.A. is a Partner with The Rawls Group, a national business succession planning firm. He can be reached at dschneider@rawlsgroup.com. For more information visit www.seekingsuccession.com

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