Management Succession: Preparing the Transition

Date August 27, 2019

It’s going to happen. At some point you will move your dealership to another owner, be it one of your children, an employee or an outside buyer. Doing it right requires advanced planning and a multitude of considerations: the financial security of the business, transfer of wealth, taxes, future business strategies, family values, your long-term personal goals. Most of all, transitioning to a new set of leaders is critical to ensuring the ongoing success of the dealership. Managing leadership succession involves a number of difficult steps including consensus building and assembling key parties into a succession planning team.

Knowing when to start is one key to an orderly transition. The longer you wait to get your team together, the more difficult the initiative becomes and the more obstacles you will encounter in making the transition. At a minimum, an owner should start planning three to seven years in advance of selling or retiring. We recommend starting when the dealership demonstrates the ability to generate consistent profits and the current owner reaches age 50.

Some of the usual starting considerations:

  • Will your children be coming into the business and how will each be involved? That will require educating children about the functions and conditions of the business and making sure everyone involved remains open to the evolution of, or changes in, the succession plan.
  • If no children are involved, then how and when will a successor be determined?
  • Or should you simply sell the business, monetize your investment?

Starting early is also important as any succession plan should include a contingency plan addressing an untimely death or disability or other unexpected event.

Starting early gives you time to build your succession team. Your team could include family members, employees, a banker, a member of your 20 group, and outside advisors. Regardless of the makeup of the team, it should exhibit four characteristics: trust, openness, realization and interdependence. A team with those qualities will be able to overcome what are bound to be multiple hurdles and challenges in negotiating the process toward a successful successor.

A succession plan will address four phases of transition:

  1. Initiation or point of entry: when succession planning begins
  2. Selection and assessment: choosing the leaders for the next generation based on accomplishment and dedication, which could involve psychological and other testing.
  3. Education and training: ensuring the successor has the skills and knowledge to continue a profitable operation
  4. Passing the baton: transferring authority and accountability to successors

Some common issues to address:

  • How to encourage your children to think positively about a succession plan?
  • How to determine when children are mature enough to be considered as successors?
  • Who should succeed as dealer-operator or CEO?
  • When should the current dealer retire?
  • Will your manufacturer have an opinion (positive or negative) of your chosen successor?
  • What are your options in terms of a prospective leader?
  • Should you sell the business to an external buyer?
  • A personal development plan for the successor dealing with “operational” skills—technical, financial, and organizational issues—and “essential” skills—the ability to communicate with staff, customers and manufacturers.
  • A leadership development plan, including creating a vision for the future of the business, commanding respect and being professional.
  • The transition process, including the changing roles of the current and succeeding dealer, their evolving job descriptions and who’s making key decisions at what points.
  • A plan to communicate the succession to your constituents, including family, company and community
  • The organizational succession plan, including how top management will be affected, the career paths of key managers, and the future participation of family members in the business.

A successful management transition is not only key to ongoing profitability but to the legacy of the retiring owner. As famed management consultant Peter Drucker noted, “The final test of greatness in a CEO is in how he chooses a successor and whether he can step aside and let the successor run the company.”

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