In this bizarre 2022 environment, profits and multiples are high, having many thinking it is an excellent time to cut the stress, sell and get a big payday. As such, you may be part of the dealer community wanting to stop ruminating about the dark side of future electrification, manufacturer pressure, distorted big group competition, family rivalry, or key manager loyalty. And then there is either your motivation, health, or energy to keep grinding it out and vacillating about if the next generation has what it takes.
The pandemic has created cash beyond what we could imagine and has created significant stress about the future. In short, there are many reasons for you to consider selling the business. However, amidst thinking they have chosen the simplest decision to cash out with multiples so high, a factoid many dealers overlook is that every significant action relating to dealership ownership transfers has snakes and reptiles hiding under the surface: some benign, some painful, and some poisonous.
There are generally two ways dealers move in consideration of the sale.
Most dealers talk to expert buddies about cashing in their chips and hook up with a broker without understanding the snakes lying just below the surface. Then when those Letters of Intent begin coming across the table, the thought of selling becomes reality and the snake dance begins, with the owner(s) trying as hard as possible to please everyone who has taken exception to good-faith decisions. Unexpressed expectations amongst partners, key leaders, and family begin to create resentment, fear, anxiety, which feels like falling into a snake pit. The dealer then begins an effort to endure the frustration, pain, or poison they thought they were letting go of by selling. Rarely does the south side of a “get-er-done” sale leave a smile on the expanded family of faces. The following are just a few of many snakes and reptiles lurking under the surface:
- What do my partners think of the sale?
- Will non-competition payments be allocated among partners?
- What will be the F & I chargebacks?
- Who will manage the “wind-down” of the corporation? How long will this take and how much will it cost.
- Should we sell or keep the real estate?
- Will my key managers be taken care of?
- What will I do after-sale? Do I stay home, find hobbies or pursue dreams?
- What will my employed family do after-sale?
- How do my children achieve paychecks as high as I have been generously paying?
- Can my son-in-law get a job in town so that my grandchildren can stay nearby?
- What will be the personal cost of demos, travel, cell phones, internet service, health insurance for me and my extended family who have been relying on the business?
- What will be the tax ramifications of a sale, depreciation recapture, LIFO recapture, capital gains tax?
- What will be the net cash after expenses, taxes, and debt?
- Will this net cash support my family as the dealership has supported us?
- What type of stock and bond market risk will I have to accept to achieve a return that will support my extended family?
- Do I know anyone I trust that can manage an investment portfolio as well as I managed a dealership?
Investigate & Navigate to Clear Water
Alternatively, some dealers hear the squirming down below and do not accept that it is their stomach growling. Experience has proven to them, what may seem like a simple decision, in complex environments such as the car business; requires investigating and navigating financial, family, community, emotional and social issues. As such, they partner with experienced facilitators to help them identify all options on the table based upon their vision for their family and impact on the community, key leaders, and employees.
As succession planners, or sometimes referred to as snake handlers, we believe the sale is a viable succession option. Remember, there is no such thing as a free lunch. If you are going to score the cash, you have to pay the price. Depending upon your sale or gift goal, dealing with slimy, deceptive snakes is minimally tedious and potentially heartbreaking. The sale of a family enterprise with a far-reaching vested web of partners, family, employees, and vendors invariably involves cleaning out some snake dens. A cannonball is exciting, but not so fun into unknown murky waters. If you are choosing to sell to minimize stress and cash out at the highest dollar, find yourself experienced snake handlers. Snake handlers (succession planners) will guide and help you navigate the murky waters towards the future you want, whatever that may be.