DEALERS SHOULD START THINKING NOW ABOUT ANY SUCCESSION PLANNING AND START PREPARING FOR IT
Although January 1 marks a new year, the planning for that year should start now — assuming you have not already started. I talk to many dealers who wait until their brand gives them their forward-looking targets to start thinking about next year.
The reality is that planning is an ongoing exercise, but few dealers treat it that way.
As dealers, we own a complex mix of fixed operations and retail operations that function as interdependent businesses. This calls for comprehensive planning on many levels in order to give us a fighting chance at maximizing profits and dealership value.
The sad reality is that most of us still largely focus on new vehicle sales and let the rest take care of itself.
In today’s world of intense buy/sell activity, we as dealers can’t afford to operate in a so-so manner.
You never know when the opportunity is going to come your direction or in some cases is forced upon you. I believe you have to prepare for the unexpected.
Let’s look at James, a 30 plus a year dealer. James has a comfortable lifestyle working only a few hours a day. His business has been struggling for a few years but it is moderately profitable.
James believes it has tremendous potential for a young buck willing to put in the hours. His brand has been on his case recently for lackluster new vehicle sales performance.
Recently James’ brand indicated it they would like another dealer, and introduced him to the preferred candidate. James and the new candidate struck a deal, largely for the real estate, but also a small number for the business.
James was quite surprised at how little his business was worth.
Let’s now take a look at William, also a 30 plus a year dealer. He too has a comfortable lifestyle and works a few hours a day. His store is underperforming but is still profitable.
High employee turnover has been a problem. William’s son is the general manager, but the brand has not yet approved him as successor. Recently, William approached the bank to increase operating lines and requested a term loan for expansion.
William’s long-time bank was not warm to the idea because of poor performance levels, and expressed concerns when he was unable to clearly articulate a long-term plan. The bank had never met his son.
In the end the bank advanced a portion of what William had requested but in the process demanded a security interest in all of William’s personal holdings. The interest rate was high and the repayment terms were aggressive.
William spoke to a long time dealer friend who had always expressed interest in buying the store.
William was quite surprised at how little the business was worth.
Finally, let’s look at Reggy’s situation. Reggy runs a profitable, tightly controlled dealership operation. He is an above average performer for his brand. He too has a comfortable lifestyle and works a few hours a day.
Reggy watches the numbers, and has an overall dealership plan. His dealership has little employee turnover. Reggy recently completed a buy/sell transaction and was surprised at how much an outsider would pay for his business.
Reggy was not looking to sell. He was approached by a dealer group to see if there was any interest in selling. At first Reggy’s instinct was to say no, but he was curious as to how an outsider would view his dealership that he had worked so hard to perfect over the past 25 years.
After a few short months of dialogue, Reggy decided to sell.
These three stories are similar but their endings are different. Many years ago, making a good buck and living a comfortable lifestyle meant you were a successful dealer. But the world has changed.
With dealer acquisitions such a big part of dealer life today, keeping your eye on your dealership value is your critical key performance indicator. Successful dealers realize that buyers do not buy on emotion, but rather on fact.
So here we are in the late summer. We should be thinking about the future and planning for it.
Planning, in my mind, falls into a few broad categories.This includes ownership, operations, financing, brand relationship and teamwork.
Ownership is a long-term issue of which many of us procrastinate. Replacement could be a family member, a general manager, a new business partner or a new dealer altogether.
Successful transitions do not happen overnight and do not fall into your lap. They take time, effort and planning. If you have not done so, start planning for your succession now. Get the help you need to get started. And then get started.
If you believe you have a plan, are you on track? Are the assumptions you made in your plan still valid?
Operations is both a short and long-term issue. Is your dealership currently a top, average or below average performer? Look at each business unit, namely new, used, finance, parts, service, body and other.
When is the last time you did a market study? How has your market changed and where is it headed? If you are not a peak performer in all areas, what is your plan to make them all perform well?
Also, consider your staff, facility and workflow.
Financing is as critical today as ever. Low interest rates have hypnotized us to rely on debt but what would happen to your profits and cash flows should interest rates and/or repayment term change?
Consider how your operations would have to change under an alternate financing environment.
Brand relationship has always been important but I believe it is as important today as it has ever been. The relationship between brands and its dealers, and brands and customers, has evolved.
Think about how you sit with your brand. What are your brand’s short and medium-term plans, and are they synchronized with yours?
Planning involves asking yourself a bunch of tough questions, and then answering them honestly. You need a plan to fill in the gaps. This needs to happen on both the big picture level and daily operations level.
But, you can’t do this all by yourself.
You must empower your team to brainstorm, develop ideas and implement plans. You must create the environment to allow creativity and teamwork to germinate.
You must hold your team accountable — and they must do the same with you. You must be fair.
It’s critical your key management team attends retreats and conferences to take time away from day-to-day operations, and focus on the business.Regular validation meetings and updates throughout the year are also crucial.
Risks must be taken, revisited and amended should desired success not be achieved. Wins should be celebrated, as should risks taken, regardless of the outcome.
You are managing a robust team of people with varied backgrounds and experience. A clearly articulated plan allows them to define the parameters of your store, and focus their efforts on achieving the desired results.
In so doing you solidify your organization and ensure maximum value, however you might define it.
It all starts with a plan!
