Succession planning is about much more than who takes over when a dealer owner dies. It is also about creating the conditions for the next owner or owners’ success. Hugh Roberts, a partner and succession advisor at family business succession planning experts The Rawls Group, spoke with Getting to Go! about how The Rawls Group assists families in crafting a succession plan which benefits diverse needs. Below is an edited version of that conversation.
G2G: You speak at 20 Groups. What advice do you give them?
Hugh Roberts: Succession is a topic people believe is important, but it is real easy to push it to the side. (Succession planning) is not fun. Because succession, in most dealers’ minds, is all about them dying, but in our minds, it is all about being successful today and building value today. The succession demands you pay attention to developing a plan. If you hope it will turn out, it probably won’t. The businesses that pass through multiple generations didn’t do it on hope.
It includes a will, a trust, buy sell agreements, estate planning, and the like, but in addition to those elements, it requires that the owner is motivated to do the work it takes to build a succession plan (including) a profitable dealership, a leadership team, effective management, bench strength, and a strategic plan that involves the changes that need to happen when that day comes.
G2G: When should a family-owned dealership group begin succession planning?
Hugh Roberts: Succession begins today. The younger you are the better (so) we don’t have to backtrack. We worked with a dealer in his late 50’s with two sons coming into the business. They are fresh. We immediately set up requirements for them to enter the business.
In general, setting up such plans includes what is the family business employment policy, what do you have to do to come to work here such as having a college degree, having other work experience and the like. It is not just because your name is on the door that you get in. Plans also include who owns stock and how inactive shareholders figure in. All those things can get sticky as all get out later on.
G2G: What if the next generation doesn’t want to be in the business?
Hugh Roberts: If a child doesn’t want to come in there are all kinds of reasons. I think it is important to help a child understand where is the juice, what gives you enthusiasm to commit your life to this. A lot of kids look at their parents and say I can’t compete, or I don’t have the skill sets. For example, we had a dealer who was a consummate salesman. His son was not (great salesman) and changed to a premed major after a summer of trying to sell cars. The father didn’t know how to address it with his son. His son only compared himself to his dad’s great salesman ability, but it takes other skills as well to sell cars. I do think there are a lot of kids who will turn it down for the wrong reasons. They may see dad working super hard, having all kinds of pressure, and the like.
G2G: I hear a lot about a generation leaving the business because of increased regulatory demands and the need to invest in all things digital. Are you encountering that?
Hugh Roberts: Ironically, the next generation is probably better prepared to deal with digital (than the current generation). The in-coming generation is probably hearing the profit margins are going to be more difficult with electric vehicles and the like. Entrepreneurs are a rare breed. They have a phenomenal ability to make it work. They will be different and make adjustments in order to thrive. Though we are now seeing dealers selling, for all those that are getting out there are just as many coming in. The good news for most generations is they that are not starting from scratch.
G2G: How does family succession planning differ from other forms of succession planning?
Hugh Roberts: Family at its best can be wonderful and at its worst a nightmare. It is because of the dynamics you have to deal with. We have dealers who don’t have family. Or, one had several daughters who did not want to be involved. He thought he had to sell now, I said, from everything you’ve told me you love what you are doing. He had a good general manager and other key people that are very gifted. One option is for him to continue with them. He trusted them. We advise, you need to lock (such employees) down so they aren’t fearful (of the future). The dealer was in his late 50’s; his key guys were in their 50’s. They were worried he would retire and they would be stuck. We made it so they could get a piece of the action if he sold, also if he died or his wife took over (and the dealership was sold), they got a percentage of the sale price, so they were committed to staying through the sale. It was a bigger percentage if he died. They could continue to work there without worry. He also gave them a deferred compensation plan.
G2G: Business, tax, financial, family and emotional issues are all part of succession planning. Which is most the important and/or difficult ?
Hugh Roberts: One of my partners a while ago said the easiest part is tax planning, wills, trust, and other legal aspects. There are proven ways to do it and effective road maps. When you start dealing with people and family issues such as the dealer not wanting to let go, the problem with that is the successor never gets a real opportunity (to learn the business).
From our perspective what they have to understand is they don’t have to leave. I have a wonderful succession plan I have been using for over ten years. My partner is 45 years old; I am 75. We have worked together for 11 years. He still wants me to be involved. Over time we have given him more and more of the limelight (but) we are in every single case together. He is ready to go; he has the relationships with the clients.
In the same way, dealers don’t need to leave but you need to make room for your successors to gain some experience. I talked with a guy, entrepreneurs retire and come and go, but he said no, I am the CEO, I have to show up for meetings. We talked about transitioning from CEO to chairman of the board. Being chairman doesn’t require you to be at every meeting but his organization is huge and his successors don’t want him to leave.
G2G: What about the manufacturer’s role in the succession plan?
Hugh Roberts: Business owners like to be in control of their own destiny. The only way to do that is to develop a plan. You don’t have the ability to hand the business off to anyone (you want to). Only the manufacturer does. Your kids have to have the respect of the manufacturer. You have to develop a plan and get it approved by the manufacturer. Unfortunately, most dealerships are afraid the manufacturer isn’t looking after their best interests and are reluctant to reveal it. Getting it approved while you are still around is the best way to ensure that you will get the outcome you want. Now you are in control because it is your plan.
Manufacturers come to us because they are concerned the vast majority of their aging dealer owners do not have plan. What we have gotten from manufacturers is the opportunity to speak to their dealer body. We tell dealers to strike when the time is right in seeking approval. They need a need qualified individual that owns a certain amount of stock (and) manufacturers don’t want to deal with a committee. They want to make sure the dealership itself has met certain qualifications regarding CSI and market penetration. It helps when you have those things going in, and a good relationship with manufacturer’s representative.
This article was written for Getting to Go, a buy/sell newsletter from Scali Rassmusen.