Why planning for succession is key to your dealership’s near and long-term success

Planning for the successful sale and transition of a businesses can be a mixed bag for many dealership owners. It’s exciting to see years of personal and professional investment bear fruit. But it’s also emotional to step away from all that hard work and commitment.

While the journey itself often takes place over several years, there may sometimes be a need to accelerate due to a change in personal circumstances or surprise offer from an interested buyer. Given the uncertainty and unpredictability in today’s business landscape, it’s more important than ever for dealers to begin planning early to maximize their options and take advantage of any opportunity that arises.

New challenges and opportunities are accelerating the path to exit

The COVID-19 pandemic, coupled with other broader economic and demographic indicators over the past two years, has pushed succession planning to the forefront of owners’ minds. Dealerships are facing a unique set of circumstances with forced closures early in the pandemic, new protocols for interacting with customers, challenges finding and retaining staff — all coupled with ongoing inventory shortages and a seemingly insatiable consumer demand for vehicles, RVs, boats and other leisure machines.

Selection is low, gross margins are high, and the future is anything but certain with the unstoppable growth of electric vehicles.

Recent history and the current state of affairs are accelerating the exit horizon for many dealership owners. Even those who could see themselves putting in another five or more years before even thinking about planning for succession prior to the pandemic are increasingly keen to speed the process along. The present environment is mentally and emotionally taxing and many dealership principals have simply had enough.

At the same time, we’re also seeing high levels of interest in dealership acquisitions across Ontario. Potential buyers are out there and are generally well-capitalized and looking to grow their efficiencies through additional locations. The most common dealership buyer groups we encounter include:

• larger national groups which own numerous locations, representing several different brands across the country,
• localized family-owned groups looking to add a third, fourth, or fifth store in a close-to-home market, or
• internal family succession from parents to adult children working in the business.

Somewhat less common are key management employee successions to non-family members, where the purchase price can often be a barrier to a successful sale and transition.

The value of involving your advisor early

A proper succession plan should be just that: a plan — ideally structured well in advance, with an appropriate runway for decision making, relationship building, and the inevitable number crunching. In many cases, the dealership’s corporate structure may not be set up to optimize an upcoming sale. If so, a reorganization or purification may be necessary to extract shareholder value before the planned sale date. This cannot happen overnight. 

When it comes time to discuss the framework of an offer with an interested buyer, dealers should consult both with legal counsel and experienced accounting professionals who have significant dealership buy-sell experience.

Many dealership principals will initially attempt to negotiate the framework of a multi-million-dollar sale on their own without fully recognizing the numerous intricacies that are specific to transitioning a dealership. They only consult independent professionals after a handshake deal or verbal transaction agreement has already occurred. This can force sellers into the awkward position of having to backtrack on commitments they unknowingly made to the prospective buyer.

Involving a skilled succession advisor early in the process is invaluable for sellers to understand the key framework of a business succession up front. They can help all parties involved explore the numerous options available for a mutually successful transition.

Contact us

Jeff Hanley, CPA, CA, is a Business Advisor and the Ontario Provincial Dealership Lead at MNP. To learn more about your succession options, contact Jeff directly at [email protected] — or take MNP’s free online assessment at ExitSMART.ca.