CHUCK SEGUIN SAYS THAT WHILE HAVING A PLAN FOR THE FUTURE IS ONE THING, EXECUTING IT SUCCESSFULLY CAN BE ANOTHER.
We often complain that not enough dealers engage in succession planning.There is an implicit assumption that if you plan, it will be successful. Just like in Field of Dreams, with the notion of “if you build it they will come.” Hollywood has a distinct advantage over real life. It can write and produce the ending! Dealers do not have the same luxury.
I am fortunate in my line of work to speak to a large number of dealers at all stages of their evolution. I get the opportunity to work with many. I can truly say that all situations are different, not so much because the business cases are that far apart, but rather because the people involved are all individuals living real day-to-day lives.
STAND ALONE STORES
Depending on how you do the math there are between 1,650 and 1,800 stand alone dealers in Canada. That represents approximately 50 per cent of all automotive retailing rooftops.
Many of those dealers have some sort of succession plan in place but as we also know, approximately 43 per cent do not. Let’s take a look at some examples of stand alone operators who had succession plans in place but also had to cope with unexpected obstacles.
Our first example is Mike. He is a seasoned dealer who was fortunate that his daughter wanted to enter the business. Mike was very proud. After his daughter graduated from university, she joined the family business and was very good at it.
Over the next 15 years she worked her way up the ladder to general manager and was nominated and approved as the dealer of the future by the brand. She became a shareholder and was buying out Mike over time. As can sometimes be the case, she was thrown a few curve balls in her personal life and made the very tough decision to leave the business. No one can fault her for the decision she made. It left Mike, however, now age 70 with no succession plan.
As a result, Mike now has to start over, something he really does not want to do and is trying to decide what his next steps are. He had thought that he had done everything right and is now quite taken aback by the task ahead. He acknowledges that had he known then what he knows now he would have done a few things differently.
Let’s look at Jimmy. Jimmy is in his late 70s and has been active in the day-to-day decision making at his store for 45 years. Two of his three children are in the business; his daughter since university and one of his sons for the past 10 years after a successful career in law.
His son has just been appointed a successor dealer under the dealer agreement by the brand. Jimmy, however controls 100 per cent of the operating company and real estate.
The son and daughter want to make a strategic acquisition but find themselves requiring dad’s approval. Dad believes they have their hands full managing the one store and is not confident they can take on more responsibility.
This is causing an issue within the family and although succession has been planned from the brand’s standpoint, succession within the family is not clear. The children have asked Jimmy to sell the store and have indicated that they would like to go their own way.
Our final example is Tom. Tom has been a respected dealer for almost 50 years. His son is well educated, active in the business but not the appointed successor by the brand. Within the family everyone turns to the son and it is very clear that the son wants to and his parents want him to take over the business. Tom controls 100 per cent of the company and attends all critical meetings.
In fact, Tom often attends those meetings by himself, not even inviting his son to them.
Tom’s last will and testament leaves the business to his son with purchased life insurance to cover the taxes upon Tom’s death. Tom’s intention, however, is not to transfer any ownership until his death. Tom is also reluctant to approach the brand to get successor approval for his son. Deep down Tom is not convinced that the son will be approved and does not want to face that issue head on. He’d prefer someone else handle it, post mortem and hopes the brand will have no choice but to appoint his son as the dealer.
These three examples are all very different but similar. Mike, Jimmy and Tom, when asked, will tell you that they have a succession plan. In reality they do but all three of these situations show how circumstances can affect those plans.
STAYING FOCUSED
The critical points to take away from these three simple examples are as follows:
- No plan lasts forever;
- There is a right time to exit the business as the key decision maker and if you hang on too long, you increase the risk of failure;
- Face the tough issues head on, no matter how difficult they may seem;
- Live in reality not in fantasy.
Those who have and are successfully navigating through the succession maze will tell you that you need to constantly work at it. It’s not something that you do just once in a while. It becomes part of your family dynamic and fabric.
Planning for succession involves both ownership and management. Management succession is a tough one, since in some cases it might mean carrying a little extra management bench strength. This adds cost and we all know how much we like to incur added costs. This is especially true when the founder and successor are both drawing healthy salaries.
In situations such as Mike, Jimmy and Tom find themselves in, the sale of the dealership is almost guaranteed. This was not the intended plan but likely the only realistic outcome.
WOULD YOU BUY YOUR STORE?
This leads me to my final critical point: always manage your business like you are positioning it for sale. Annually, when you complete your year-end financial statements, measure the increase in value.
Constantly look at your dealership with a critical eye, like you are the purchaser not the vendor. Is the property up to snuff? Does the inside of the store look fresh and inviting? Is the balance sheet free of any underwater used cars, overstated assets or understated liabilities?
Planning for unexpected moves by your successors is never easy, in fact it is somewhat counter-intuitive. It is, however, necessary. This approach will at least mean that you are prepared for the unexpected should your succession plan not have that Hollywood ending.
