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Attention Business Owners: Plan for Your Succession Now

Nobody likes to think about estate planning. Not only does the phrase evoke a sense of drudgery, but many people literally associate it with death. Clearly nobody wants to think about their own death, especially when there are deals to be done, customers to please and reputations to build. The visceral aversion to sitting down and thinking about what happens after is certainly understandable.

Photo by Benedikt Matern – sourced on Unsplash

The counterpoint to this clear and convincing emotional logic is inevitability — the day will come when you will not want (or be able) to operate your dealership(s) in the way you have in the past. Hopefully the decision to walk away is voluntary and you do so on your terms with rosy prospects on the horizon. Unfortunately, the decision to bid farewell to your dealership may not be in your hands, but whether it is or isn’t you can have much more control over the outcome by planning ahead for succession.

Planning for the Inevitable

Given the inevitability, it makes sense that smart and thoughtful people would choose to plan their exit, but too often they don’t. This issue applies to all businesses, but given some unique issues in in the auto retail industry, the issue takes on greater importance. Without careful thought and planning, succession will likely be disruptive and entail a material loss of value. Owners who do not plan for succession often experience the following undesirable outcomes:

  • The need to engage in a “fire” sale upon an untimely death or disability.
  • The decimation of value due to reactionary decisions regarding business operations, when no management succession is in place.
  • Poor decisions as lenders, manufacturers and vendors witness a sudden event and see no stability in place.
  • Family discord driven by uncertainty, misunderstandings and business chaos.
  • Customers, employees, vendors and others who must deal with the fallout.

Consider the OEM

Many original equipment manufacturers (OEMs) are pushing harder than ever to determine succession in the dealerships. The very real concern that the next generation of the family is not qualified to run the dealership(s) has many OEMs nervous.

The owner/OEM relationship is always tricky because the OEM is part partner and part adversary. Without succession planning, the role as adversary often grows while the role as partner shrinks, and the end result can get ugly. I have seen several situations in the past few years when the owner and family leader passed with no clear line of succession, and the remaining family and businesses were left to battle with the OEMs. Those battles affect operations, OEM relationships (which can affect allocation and other incentive matters) and often time third-party relationships (for example, lenders or vendors) as the OEM inquiries and demands gives the impression of instability in operations.

To avoid such battles and the accompanying complications, take the positive step of planning ahead for your succession.

Key Issues to Consider

Succession planning is a complex endeavor, especially in terms of conflicted emotions and interests, particularly if family is involved. To begin your planning, start thinking about the following issues:

  • Whether or not a next generation of family is available, willing and able to run the business.
  • Who will be in control to ensure the family assets are in good hands. You can make this decision through reflection and discussion.
  • Whether multiple children or next generations need to be considered. Discussions can include communication on what the plan is and why. The objective is to create a shared understanding of what is happening with the assets and whether some people will not be involved and why and how they will be able to benefit from the assets.
  • If you own the business, how to monetize the assets at some future time under non-duress terms.

Considering Different Approaches to Exiting

If you are not planning to pass the business to one or more family members or other parties, but to sell the business, you have several options:

  • Sell to a third party
  • Sell to current operating management
  • Partner with a third party to continue operations now while selling part of your interest in the business and then sell the rest later

Whatever your succession plan is, remember this: planning ahead gives you more control over the outcome and enables you (and any successors) to realize the most value. The worst approach is to avoid the drudgery of planning, giving yourself or your loved ones few options and diminished value (if a sudden life-changing event occurs) and leaving everyone involved unnecessary chaos and uncertainty.

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Disclaimer: The information in this blog post is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Stephen Dietrich, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this Post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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About the Author: Stephen Dietrich is an attorney and author who has a passionate interest in the human side of business. His distinctive combination of legal and business knowledge, human insight, and dedication to clients makes him uniquely qualified to help corporate leaders and other C-level executives navigate high-value mergers and acquisitions, restructure transactions, and manage day-to-day operations. Through this blog, Stephen shares his extensive experience and unique personal and professional insights in the hope of stirring thought and dialogue that leads to ever deepening insights and understanding. For more information, please visit www.StephenDietrich.com.

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