As a dealership owner, you have spent years building and nurturing your business. Your leadership, relationships and decision-making have played a significant role in its success.
But what happens if you step away? Can your dealership function smoothly in your absence, or would it struggle without your direct involvement?
This article explores the importance of evaluating your role within the business, developing a succession plan and ensuring your dealership is structured for long-term success — whether you choose to sell or step back from daily operations.
Assessing your role in the business
The first step in preparing for a dealership transition is understanding the extent of your influence within the organization. Ask yourself the following questions:
- Are you the primary decision-maker?
- Do you approve all major purchases, hires, and operational strategies?
- Is your involvement necessary for day-to-day operations?
- Are customer relationships dependent on you?
- Do customers expect to work directly with you?
- Would business suffer if you were no longer involved in sales and service relationships?
- Do employees rely on you for guidance?
- Are managers empowered to make decisions without your input?
- Would operations slow down if you were unavailable for an extended period?
If you find that your dealership is heavily reliant on your presence, it's time to focus on building a more autonomous structure that ensures long-term stability.
'Bus or Vacation' theory: What happens in your absence?
The 'Bus or Vacation' theory is a simple but powerful way to gauge your dealership's independence from your leadership.
- Bus Theory: If you were suddenly unable to work due to unforeseen circumstances, would your business continue to function efficiently without you?
- Vacation Theory: If you took an extended vacation with no contact, would your dealership still meet its sales goals, maintain profitability and continue daily operations without major disruptions?
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If the answer to either scenario is "no," then your dealership may be too dependent on your leadership, which can be a red flag for potential buyers and successors.
Developing a strong leadership team
A well-structured dealership should have a leadership team capable of managing operations without the owner's constant oversight.
Here's how to strengthen your management structure:
- Empower key managers:
- Identify strong leaders within your organization who can take on more responsibilities.
- Train department heads to handle decision-making in sales, service and finance.
- Create a general manager (GM) role:
- If you don't already have a GM, consider promoting from within or hiring externally.
- Ensure the GM understands your business philosophy and can execute your vision.
- Establish clear processes and standard operating procedures (SOPs):
- Document key workflows and decision-making protocols.
- Provide training so that employees understand and follow these procedures consistently.
- Incentivize employee retention and growth:
- Offer competitive compensation, benefits, and career advancement opportunities.
- Foster a culture of professional development to retain top talent.
Evaluating your compensation and replacement cost
If you are considering stepping away from daily operations, it's essential to determine if you are being compensated fairly compared to the market. A buyer or successor will want to know:
- What would it cost to replace you?
- If a new GM or CEO were hired, what would their fair market value (FMV) salary be?
- Are you over- or underpaying yourself compared to industry standards?
- How does your exit affect financials?
- If your salary is below market rates, a buyer may adjust financial projections accordingly.
- If you are drawing excess compensation through the business, it could impact perceived profitability.
By aligning your compensation with FMV, you provide transparency for potential buyers and ensure a seamless transition if you decide to exit.
Preparing for your exit: Succession planning
Whether you intend to sell the dealership or step into an advisory role, a well-thought-out succession plan is crucial.
- Identify potential successors:
- Can an existing manager or family member take over leadership?
- Would an external candidate be better suited to run the dealership?
- Create a transition timeline:
- Gradually reduce your involvement while mentoring your replacement.
- Set clear milestones for transferring responsibilities over a defined period.
- Develop a contingency plan:
- Have an emergency leadership plan in place in case of unexpected circumstances.
- Ensure key employees understand their roles in a transition scenario.
The impact on business valuation and sale readiness
A dealership that runs efficiently without heavy owner involvement is far more attractive to buyers. Here's why:
- Lower risk for buyers:
- Buyers want to invest in a stable, self-sufficient business.
- Heavy reliance on the owner can reduce buyer confidence and impact valuation.
- Smoother transition process:
- A well-structured team makes ownership transitions seamless.
- Buyers will feel more confident knowing key employees will stay post-sale.
- Higher valuation:
- Businesses with established leadership and documented processes command higher valuations.
- Buyers are willing to pay more for a business that requires minimal hands-on involvement.
Conclusion
Understanding your role within the dealership and ensuring it can function without you is critical for long-term success. Whether you plan to sell or step back from daily operations, developing a strong leadership team, implementing clear SOPs and aligning your compensation with FMV will position your business for a seamless transition.
By taking proactive steps to delegate responsibilities and build an independent management structure, you not only enhance your dealership's marketability but also provide stability for employees and customers alike.
The goal is to create a business that thrives with or without you, ensuring its success for years to come.
