How To Start Succession Planning
John Chisholm May 15, 2020

From the inception of the retail automotive dealer network, an essential component of owning a franchised dealership became very evident; having a succession plan.  In past years, succession plans grew out of the number of dealer’s children that took a keen interest in the dealership.  What was evident over a century ago, continues to hold today.  The only thing worse than not having a succession plan is having a succession plan that is not well thought out or lacking a reasonable chance at success.

In interviewing my dealer friends across North America and asking what their succession plan looks like, I have heard many versions.  Everything from “My plans are in place with my family, (or the OEM, or my business advisors),” to  “I’m just going to sell it all when I am ready to retire.”

I am not suggesting that a perfect succession plan exists, as I’m not sure it does.  Most strategies will require re-evaluation or minor detours, similar to our wills and last testaments.  Plus, every plan will be different; no two approaches are the same.  Case in point: the global pandemic we are all experiencing.  No matter what your strategic succession plan may be, you will want to realize the fruits of your hard work and effort over the years.  Take a long term view of the business and not a short term snapshot.

I know of single points and dealer groups that are fourth-generation dealership owners. In some cases, the number of owners and dealerships expanded with each generation.  In most of these cases, the succession plan was structured years before implementation, and the successors continued to grow the business.

One of the most challenging discussions to have with family and managers with an investment is always about money. In the case of succession, you are talking about the global amount of your asset.  Determining how you sell your business to your successor, and in the case of multiple successors, spread over one dealership or a group, who will be in charge?  Who’s desk will the buck stop at and what will be the reporting order?  These are critical components of your plan.  Hence, it is essential to have a business valuation done at the outset of discussing your strategy.  Having a credible business valuation on hand for these discussions will help clarify your expectations of the successor and set their sites correctly on the length of time it will take to retire their debt to you.

Now, business valuations can come in a lot of different shapes and sizes – as can the invoice for them at the end of the process.  As I pointed out earlier, a credible business valuation is critical. Where do you get one?  How long should it take?  Many organizations offer business valuations as a service. Still, very few of these establishments have undertaken a varied mix and or a large amount of franchised automotive dealership valuations—organizations such as these could lack the expertise in determining your franchise value and the goodwill associated with it.  In my thirty-six years as a dealer, I commissioned five different valuations.  The first was in 1995, and the cost was over $40,000.  By comparison, the last one completed in 2017 by Dealer Solutions Mergers and Acquisitions (DSMA) was a fraction of the cost and contained considerably more valuable factual and market-driven information.  Dealer Solutions Mergers and Acquisitions (DSMA) are approaching 900 dealership valuations and 300 completed buy/sell transactions in North America, with in-house certified business evaluators and expert automotive accountants on staff.

Succession Planning is easy to put off, but it shouldn’t be if you approach it proactively. It leaves the door open for changes to your wishes as business dictates.  Your exit strategy is a crucial element in guiding your short, medium, and long term business decisions.  I am passionate about working with my extensive network of dealers so should you require any assistance with your plans, please, don’t hesitate to reach out to me at John.Chisholm@DSMA.com or via LinkedIn at https://www.linkedin.com/in/john-chisholm-a63542a/

About the author: John has accumulated 35 years of retail automotive experience beginning in the service department of his father’s Chrysler dealership in Windsor, Ontario.  Over the years, John has owned several highly successful dealerships and attained awards such as #1 Ford Volume Dealer, Top 100 Dealer, and multiple President’s Awards.  John’s automotive passion led him to become president of OADA and join CADA as a board member.  He is intimately aware of the range of emotions and financial logistics involved in succession, divestiture, and growth opportunities, having undergone the buy/sell process several times in his career.

 

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