Interested In Increasing The Value Of Your Dealership?

Team VADA eViews

The Digital Newsletter of Your Virginia Automobile Dealers Association

March 2008

 

 

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If your answer to this question is yes, then we suggest you take another look at your succession plan. To make this fun, imagine we are using professional football’s instant replay challenge. We are the coach throwing out the red flag challenging your definition and understanding of succession planning and how it impacts business value.

 

So, let’s start with what is probably your initial thought, “What in the world does succession planning have to do with increasing the value of my business?” And furthermore, “I am planning to sell the business someday. So I do not need to develop a succession plan.” Or another one of my favorites is, “I do not care what happens to the business after I am gone, I will be six feet under. That won’t be my problem.”

 

On the surface the above sentiments sound logical. However, you may not understand that Succession Planning Builds Value irrespective of whether your decision is to keep or sell the business. In our collective fifty years of experience, we have yet to meet a business owner who is not interested in obtaining the highest value for his or her business, unless they are endeavoring to transfer the business to family members while taking advantage of available discounts and gifting capabilities.

 

Our experience has been that business owners across the country confuse business succession planning with business continuity planning.

 

 

 

Business continuity planning addresses transferring a business TO the next generation, whereas business succession planning proactively addresses transferring a business THROUGH the next generation. Frankly, achieving business continuity is a relatively simple transactional project addressed within your will, trust and/or buy-sell agreement to transfer your business to your children, partners or key managers. On the other hand, business succession planning is a more ambitious process that addresses multiple interdependent issues which comprise what we call the Succession Matrix. The interdependent issues are:

 

 

Before we go further, it is important to look at varying definitions of “Value.” It should not be news to you that “value, just like beauty is in the eye of the beholder,” it is subjective. As we repeat our point that “succession planning builds value,” we do not mean that the value is the same for everyone. In fact, some of you describe value as cash flow to support the lifestyle of the rich and famous with travel to the best resorts, second and third homes, airplanes, yachts, wine collections, etc. Others may describe value only as sufficient net worth to withstand any form of business down turn such as having no floor plan, no real estate mortgage and more gold in the safe than King Tut. And some may say value is peace of mind that the family’s business legacy will pass to the next generation.

 

To approach this from another angle, the reason you are in business is because at least subconsciously you believe that the value generated from your business is worth the time, emotions, liabilities and stress required to generate it. Otherwise, you would take your chips off of the table by selling the business and pursuing other interests. Similarly, your children, key managers and employees are involved in your business because they see that the value being gained is worth the brain damage and frustration they may incur. With respect to the end-game, you will ultimately keep or sell your business based upon the achievement of the value that drives you to hang in there or you will call the broker and find out who will take it off your hands. 

 

The point is that there are many different perspectives on value and, therefore, you should approach succession planning in a unique way based upon what “value” means to you. What is a crisis to one person may be just a casual issue to another. From a succession planning perspective there is no one definition of value and success that fits all. When dealing with succession planning, maintaining focus, enthusiasm and drive, as you address the unrelenting, interdependent aspects of the Succession Matrixsm, is critical to Succession Success. By now, we hope you understand that proactively and effectively addressing the interdependent issues listed above will increase the likelihood your business will sustain and increase profitability which directly impacts business value.

 

Now, the referee returns…upon further review, the ruling on the field is overturned – Succession Planning DOES Build Value! When interviewed after the game the opposing coach replied, “I was certain I knew the definition of succession planning. But now I understand that proactively and effectively addressing the interdependent issues listed above will increase the likelihood my business can sustain and increase profitability which directly impacts business value.”

 

Understanding that “succession planning builds value”, the question is: Are you willing to pay the price? Are you willing to confront difficult emotional family issues? Are you willing to develop your leadership for the future? Are you willing to do what it takes to perpetuate the business which impacts those who have a vested interest in the continuation of your business - family, managers/employees, the community, lenders, vendors, franchisors etc.?

 

Can you do it? Yes. Will you do it? I don’t know. The choice is yours!

 

 

 

Team VADA eViews

The Digital Newsletter of Your Virginia Automobile Dealers Association

March 2008

 

 

---

 

---

If your answer to this question is yes, then we suggest you take another look at your succession plan. To make this fun, imagine we are using professional football’s instant replay challenge. We are the coach throwing out the red flag challenging your definition and understanding of succession planning and how it impacts business value.

 

So, let’s start with what is probably your initial thought, “What in the world does succession planning have to do with increasing the value of my business?” And furthermore, “I am planning to sell the business someday. So I do not need to develop a succession plan.” Or another one of my favorites is, “I do not care what happens to the business after I am gone, I will be six feet under. That won’t be my problem.”

 

On the surface the above sentiments sound logical. However, you may not understand that Succession Planning Builds Value irrespective of whether your decision is to keep or sell the business. In our collective fifty years of experience, we have yet to meet a business owner who is not interested in obtaining the highest value for his or her business, unless they are endeavoring to transfer the business to family members while taking advantage of available discounts and gifting capabilities.

 

Our experience has been that business owners across the country confuse business succession planning with business continuity planning.

 

 

 

Business continuity planning addresses transferring a business TO the next generation, whereas business succession planning proactively addresses transferring a business THROUGH the next generation. Frankly, achieving business continuity is a relatively simple transactional project addressed within your will, trust and/or buy-sell agreement to transfer your business to your children, partners or key managers. On the other hand, business succession planning is a more ambitious process that addresses multiple interdependent issues which comprise what we call the Succession Matrix. The interdependent issues are:

 

 

Before we go further, it is important to look at varying definitions of “Value.” It should not be news to you that “value, just like beauty is in the eye of the beholder,” it is subjective. As we repeat our point that “succession planning builds value,” we do not mean that the value is the same for everyone. In fact, some of you describe value as cash flow to support the lifestyle of the rich and famous with travel to the best resorts, second and third homes, airplanes, yachts, wine collections, etc. Others may describe value only as sufficient net worth to withstand any form of business down turn such as having no floor plan, no real estate mortgage and more gold in the safe than King Tut. And some may say value is peace of mind that the family’s business legacy will pass to the next generation.

 

To approach this from another angle, the reason you are in business is because at least subconsciously you believe that the value generated from your business is worth the time, emotions, liabilities and stress required to generate it. Otherwise, you would take your chips off of the table by selling the business and pursuing other interests. Similarly, your children, key managers and employees are involved in your business because they see that the value being gained is worth the brain damage and frustration they may incur. With respect to the end-game, you will ultimately keep or sell your business based upon the achievement of the value that drives you to hang in there or you will call the broker and find out who will take it off your hands. 

 

The point is that there are many different perspectives on value and, therefore, you should approach succession planning in a unique way based upon what “value” means to you. What is a crisis to one person may be just a casual issue to another. From a succession planning perspective there is no one definition of value and success that fits all. When dealing with succession planning, maintaining focus, enthusiasm and drive, as you address the unrelenting, interdependent aspects of the Succession Matrixsm, is critical to Succession Success. By now, we hope you understand that proactively and effectively addressing the interdependent issues listed above will increase the likelihood your business will sustain and increase profitability which directly impacts business value.

 

Now, the referee returns…upon further review, the ruling on the field is overturned – Succession Planning DOES Build Value! When interviewed after the game the opposing coach replied, “I was certain I knew the definition of succession planning. But now I understand that proactively and effectively addressing the interdependent issues listed above will increase the likelihood my business can sustain and increase profitability which directly impacts business value.”

 

Understanding that “succession planning builds value”, the question is: Are you willing to pay the price? Are you willing to confront difficult emotional family issues? Are you willing to develop your leadership for the future? Are you willing to do what it takes to perpetuate the business which impacts those who have a vested interest in the continuation of your business - family, managers/employees, the community, lenders, vendors, franchisors etc.?

 

Can you do it? Yes. Will you do it? I don’t know. The choice is yours!