Dealership succession planning strategies

Building a thriving dealership is a testament to an owner’s dedication and hard work. However, it can be easy for busy owners to overlook a crucial aspect of entrepreneurship: planning for the succession of their business.

While thoughts of stepping down or selling your dealership may seem far away, it is never too early to begin planning for an eventual exit. Developing a comprehensive plan can protect the legacy you’ve built and secure your business’s future.

Whether you plan to sell to an individual, another dealership group, or a private equity firm; pass the business on to a family member; or transition ownership to a trusted successor within the dealership, the strategies in this article can help guide the way.

Determine your dealership’s value

Understanding the value of your dealership is critical when preparing for a sale or transition of ownership. You might have an idea of what your company’s worth, but it’s helpful to obtain an independent opinion on the valuation.

Valuations break down businesses by market capitalization, adjusted earnings, cash flow, tangible assets, owner costs, and liquidation value. Many business owners have been surprised to discover there is a gap between their internal EBITDA figure and what a buyer, lender, or advisor will calculate.

This is why hiring an outside party with expertise in this area, such as an accountant, tax expert, or advisor, can help provide an objective valuation of your dealership. These same experts can also explain market conditions and trends that might affect that value.

Once you understand your dealership’s value today, you can begin examining the different areas that are driving value for your business. Prospective buyers and investors pay attention to these value drivers, so knowing what they are — and, more importantly, how to improve them — is key.

Develop your dealership’s value proposition

Think about what makes your dealership stand out. What are your biggest differentiators from the competition? What is your elevator pitch to buyers or investors?

Even if your plan is to pass the dealership down to family members or sell it to a longtime employee, this in-depth analysis will help future owners maintain and build on your business’s success.

You can use these questions as a starting point for this exercise:

1. What is your dealership’s history and story in the marketplace?
2. How does your dealership compare with its peers?
3. How is the dealership positioned in the market it serves?
4. What can your dealership do that can’t be easily replicated?

For example, perhaps your dealership is known as a top seller for a particular market niche. You may have been filling that need with the same products or services for years but buying habits and economic factors change. When was the last time you confirmed you are still meeting those needs? Are you selling the brands and products most popular with that demographic today?

Understanding what makes your dealership attractive to buyers can also help you identify the areas you might need to optimize before a sale.

Prepare your dealership for sale

Interested buyers will want to know the dealership’s history and what the plan is for the future. They will also scrutinize your financial records, including profit margins, revenue trends, inventory turnover, and expenses. Be prepared with a well-defined financial history to attract buyers and justify the asking price.

Buyers will also want to know that your current offerings meet customer demands and that your dealership has a strong customer base and solid relationships with brands and OEMs. Be prepared to provide information about customer demographics, repeat business rates, and existing lease agreements and contracts.

Identify areas for improvement based on these expectations, such as:

• If you lack a service customers expect, such as storage or accessories, think about adding it to your offerings.
• If sales staff are relying on outdated strategies, consider improving training and sales enablement materials.
• Consider updating or shifting inventory to better align with current purchasing trends or market demands. Market research and customer surveys can help you better understand your target demographic’s needs.

Improvements in these areas can significantly affect business value. Develop a plan to address these needs before diving into a sale, and account for the time needed to build up these areas in your succession plan.

Consider succession planning now

Whether you are just a few years from exiting the business or a decade away, it is never too early to begin planning your exit strategy. You have dedicated time and resources to build a successful dealership, and you deserve to be rewarded for those efforts. Transitioning or selling your business is a complicated, multifaceted process. Seek out the right team of experts to assist you in this process.