7 Key Elements of a Successful Automotive Succession Plan

November 16, 2021

The idea of succession planning, of preparing for the future, can seem a far-off concern compared to the daily demands of running your auto dealership.

But the prudent dealership owner knows — a succession plan not only creates security for the future, it also provides strong principles that guide daily operations, making a difference for your business in real time.

Succession planning is a blueprint for your dealership’s future that gives your business the best possible opportunity to succeed.

Succession planning can be built around many different goals, including:

  • Ongoing long-term growth and operational excellence
  • Protecting your dealership’s value
  • Continued access to financing
  • Your exit strategy and retirement plans
  • Having the next generation of your family owning and running your dealership
  • Selling your dealership to your management staff
  • Selling your dealership to a larger dealer group
  • Selling your dealership to a publicly-traded company
  • Factory approval of your successor
  • Estate planning issues
  • Minimizing and covering the costs of any tax consequences

Each of these goals has its own implications and nuances. Depending on your objectives, you may take a different approach, so it’s important to work with other professionals who know the intricacies of succession planning.

7 Key elements of a succession plan

Here’s a closer look at what goes into a well-thought-out succession plan, along with how each element can contribute to making your plans a reality that will benefit all parties including in your plan.

Assemble your team

Whether you’re planning an internal transition (to family members and/or management staff) or an external transition (sale to a dealer group or publicly-traded company), you’ll first need to “plan the plan.”

This means forming a team of professionals who can guide you through all the potential challenges you may face as you execute your succession plan. Your team may include:

  • Your business attorney
  • Your CPA
  • Your banker
  • Your business insurance agent
  • An automotive M&A consultant
  • Your financial planner
  • Relevant management and/or family members

Having this team available can provide you with invaluable guidance as you work through the many legal, tax, financial, and business issues that need to be resolved to achieve your goals for your dealership.

Strengthen your management

If your succession plan is based on an internal transition, your selected family members and/or staff will need to be fully qualified and at the top of their games to successfully manage your dealership on their own. 

If it takes some additional training to get them there, invest in that now. This will assure you of the continued good performance of your dealership in the near term, and it will make it much easier to get the factory’s approval for your chosen successor(s) down the road.

If you’re preparing your dealership for sale to an outside entity, your management practices will also come under scrutiny by potential buyers. The quality and performance of your staff are extremely crucial to a successful deal and can directly affect the price that a buyer is willing to pay. 

If your management team can continue running your store like a well-oiled machine on their own, a buyer will place great value on this (it means less work and more immediate success on their end) and compensate you accordingly.

Get an accurate valuation of your business

This will give you a solid benchmark for the value to be paid when you exit the business. Include the real estate, the vehicle inventory, the blue sky, and anything else of value.

Make sure that you are properly compensated

While succession planning is centered around the continuation of your dealership’s business, your own personal retirement and financial objectives must also be provided for. 

A succession plan should include provisions that give you a guaranteed source of income, whether it is paid out over time or as a lump sum. Your team of professionals can assist you to achieve a positive outcome here.

Learn more about succession planning for auto dealerships.

Tax and estate planning for auto dealerships

Use the talents of the professionals on your succession plan team to come up with solutions that will minimize the tax and estate consequences of the sale.

Have a contingency plan if anything should go wrong

There are no guarantees in life or business planning. People get sick. They can be victims of accidents. They can get divorced or pass away. Any of these events can affect the value of your dealership, both before and after you transition out of it. Your professional team can come up with ways to protect you if this eventuality should come to pass.

Put it all in writing

Your succession plan should be seen as the blueprint for a successful transition from where you are now to where you want to be in the future. As such, it should be documented in detail and kept where you can refer to it as needed.

It should also include a firm timetable. Doing this will keep you on track as you work your way through it, step by step.

Your succession plan can also be used to resolve any disputes that may come up during the process. If the plan needs to be updated for any reason, this should be done with the knowledge of the relevant people who will be affected, and the changes should be reflected on your written document.

Learn more about succession planning for auto dealerships.

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Dave Cantin Group is here to make your dealership's succession plan a success

Whether you’re planning for your next generation of family ownership, putting your management team in control, or planning an outright sale, DCG is here to help. We have guided many auto dealer principals through the process of setting up a succession plan that aligns with their goals, values, and vision. 

At DCG, we understand what it takes to develop, present, and roll out a succession plan across an organization like yours.

Contact DCG  to discuss a comprehensive succession plan for your dealership. We will assist you in every way to protect your dealership’s value and maximize your returns when ownership is transferred.