There’s never a bad time to work on succession planning
Over my many years of practice I have witnessed many different ways that dealers plan for the road ahead. One thing is true — when ahead becomes now, very few are adequately prepared.
No one can predict the future, we can only make educated guesses and make the best decision we can at any given time. But time does not stand still. So why do so many deal- ers ignore this simple fact?
Dealers are great on their feet and react quickly to whatever is thrown at them. There are no better entrepreneurs at dealing with a changing environment than dealers. They live in the present and make decisions in the pres- ent. There comes a time, however, when living only in the present will cost you in the future.
Are your affairs in order?
Let me ask you a simple question to prove my point. When is the last time you reviewed your will, powers of attorney over property and personal care and your executors? If you are like most dealers, it’s been years.
A few years back I received a phone call from the son of a deceased dealer asking for some help. I had a conflict and could not help him but I did watch from the sidelines.
His father had passed away a few weeks prior. Of course Dad controlled everything and had not discussed his plans with anyone. As it turned out, Dad had not updated his will in more than 15 years. During that 15 -year period life did not stand still. Dad had divorced twice and at the time of his death was living common-law with a third spouse.
The son had been working at the store for the last 10 years and was hoping to become the dealer. He had three siblings, two of whom he suspected were looking for a payout. The dealer agreement had been updated a few times over the 15-year period and the finance companies had all the assets pretty much tied up due to some image program and store expansion financing. The dealership was not as profitable as it once was, had not changed with the times and cash flow was pretty tight.
To make things worse, his first wife was the sole beneficiary of the will. To add to the calam- ity, the first spouse’s brother was the sole executor — but he had passed away four years prior. The brand was nervous and after some discussion, the brand had no plan to make the son the dealer and was looking for the store to be sold. The bank was also exerting significant pressure.
The dealership did sell. It sold at a signifi- cant discount to fair value. Why? Vultures were at the door and there was no plan of attack. What had once been a high flying cash machine had been turned into a mere fraction of its former self. There was little left over.
Are you really in great shape?
Many of you at this point are saying, well that’s not me. I have insurance, a will, a hold ing company, a family trust and lots of real estate. I’m in great shape.
I sincerely hope that you are. Do yourself a favour. Take the time now to review your will, your executors, powers of attorney, beneficiaries (including RRSP and insur- ance contracts). Get in the habit of doing this every April when you assemble your personal income tax information. You will be surprised at how quickly things change.
Planning for the road ahead must also deal with disability. You are 10 times more likely to encounter a disability or critical illness than die, but many of us are not adequately pre- pared to work out of or around a disability or critical illness. We all must be prepared for an unforeseen event and have a Plan B or contin- gency plan.
You cannot develop this in isolation. You need to involve your management team, your brand, your family, your professional advisors and financial advisors.
Another story worth reading
Dealer B thought he had a Plan B when he groomed his controller to step into his shoes should something happen to him. Dealer B kept this fact secret, especially from his family. When Dealer B was in an accident and became paralysed, the family was too preoccupied with Dealer B’s health to pay any attention to the business. They assumed that the loyal folks at the store would look after things.
The performance at the store declined as did cash flow to the family to support Dealer
B. The controller saw this as an opportunity to make personal gain and struck a deal with a third party to buy the store at a huge discount and cut a sweet deal for herself in the pro- cess. Again, lack of communication and broad involvement of various management and advi- sors created an unintended toxic environment for Dealer B and his family.
We all think of risk in terms of our busi- nesses. Over the long haul, however, risk begins to shift from your business to your health and personal financial well being.
Look after the next generation
I will close with one more story. Some years back I acted for an older dealer. He was one of those tough, crusty fellows. I had known him for many years on a social basis but we had never done business together. One day out of the blue he called and asked to meet. He said it was time to get out of the business.
After spending a fair bit of time with the dealer gaining his trust and setting aside many of his objections and rules he had surrounded himself with over the years, we began to make progress toward a plan of attack. We built a team of advi- sors, the most critical of which was insurance. We executed the plan, much to the dealer and his spouse’s delight. He exited the business with pride and honour. His pockets were lined with cash, the amount he had never imagined. We were also successful in placing life insurance to protect his spouse and family of over 40 years.
He choked at his tax bill but soon began to feel comfortable with the investment returns that had started rolling in. As each month would pass, the stress and strain of a long dealer’s career began to evaporate and a new man was emerging. Sadly, some 24 months later, a terminal illness was diagnosed and three months after that he had passed away. But his affairs were in order and his family was well looked after.
Regardless of your age, planning is never a bad idea as you navigate the road ahead to your ultimate goals in life.
