Dealers are seeing record profits in spite of a global pandemic and limited inventories. This has many dealers wondering if they should be building the portfolio by buying more stores or taking advantage of the market and selling to get top dollar, and others are wondering what will happen if they just stay in a holding pattern. Regardless of the path you choose, you first must ensure that you have the right things in place.
The value of your business depends on the strength and quality of operations, culture, people, and reputation. Strength in these four areas will enable you to navigate the decision-making process with more ease. And, engaging in succession planning ensures that the financial goals you wish to have for yourself and your family are obtainable while allowing you to be flexible and agile in times of change. Consider:
Ensure you are informed about ALL of your options
You may consider selling for various reasons such as burn-out, no successor, wanting liquidity, complex family issues, fear of economic collapse, and of course the cost of competition. Many owners believe sale is the only option based upon the issues they are facing. However, there are many strategies or different ways to peel an orange to overcome what may seem like a mountain of an issue; and fulfill the owner’s vision. Leaning on qualified advisors can create a variety of different strategies where you CAN have your cake AND eat it too.
Keep in the mind, the value of the average business is discounted by approximately 33% due to commissions, closing costs, discounts on FF&E, Federal capital gains tax, State income tax, recapture of deferred taxes, including LIFO, and chargebacks. Before selling, consider what you REALLY WANT, outside of the issues you are facing. Where there is a will there is always a way.
Did you know, your business is more valuable to you than any substitute asset a sale could create?
Your business currently returns approximately 20% on market value, some more or less depending on how it operates. There are also very lucrative affiliate benefits such as reinsurance, real estate, P & C insurance, and vacation opportunities through the manufacturer, franchiser, and business 20-groups.
This extraordinary return is why “the Publics” and private equity are aggressively courting owners of highly productive businesses who want out but do not have a succession plan. At first, “the Publics” thought they could duplicate your performance. They have since recognized hired hands working only for money cannot duplicate the “family-like culture” of successful closely held companies.
Their plan now is to achieve 60% of what private business commonly produces. 60% is acceptable for Wall Street. The rush of “the Publics” and private equity to get into your space seeking only 60% of what you can produce should be a validation of the value of your business and motivation to do Succession Planning.
Succession Planning: an investment to build value and create choice
Whether you realize it or not, you are thinking about your succession plan daily simply through the effort and care to create success every day. Cycle, progression, series, string, chain; are synonyms for succession planning. Stringing together successes every day, and the predictability of a chain effect of successes in the future is what builds business value.
Scenario, contingency or also known as Succession planning ensures the predictability of a cycle of success. For each contingency addressed that has the potential to impact your business, you will increase the value of your most important asset. COVID-19; ransomware, leadership transitions, consumer behavior, political and economic fluctuations are a few of many contingencies that influence performance, culture, and business success. If you are debating selling; your buyer is interested in how resilient your business is to overcome possible, probable, and potential contingencies, which impact business value. And if building a business legacy is appealing; overcoming transitions is the name of the legacy game.
Bottom line, no matter where you are in the keep or sell spectrum; Knowledge is Power. Succession planning puts you in an informed position, providing you with the knowledge and option of choice, putting you in the driver’s seat.
Read the article and then reach out to us to get some insights into your own situation. A few moments with us will provide you insight and clarity for your next steps forward. Contact Us
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The Succession Planning Matrix
Many people put off succession planning because they think it means retirement, exit, and the end. However; succession planning is just the beginning. It gives the owner options in terms of what “their next” looks like, whether that be growth, philanthropy, or a new business venture. Our process focuses are addressing 10 key areas of what we call the Succession Matrix.