Why Now is the Time for Succession Planning
Like most entrepreneurs, farm and equipment dealership owners are busy people. They have customers to satisfy, suppliers to negotiate with, staff to oversee, expenses to manage, and a host of other tasks and challenges that occupy their time. And yet, beyond all the busy-ness of day-to-day dealership life, one nagging question often lingers in the back of their minds: “Who will look after my business after I move on?” That might well be the last question busy entrepreneurs want to think about, because it means foreseeing a future for their company without them.
A succession plan can make that prospect a lot less scary. At root, it is a strategy for passing along leadership (and often ownership) of a company to someone else, such as a family member or an employee. That’s the simple definition, but the actual process of succession planning is anything but simple. To begin with, it can involve – and deeply affect – many stakeholders, not just owners: spouses, children, business partners, employees, customers, suppliers and on and on. As well, a succession plan does not “live” in isolation; it has to be consistent with an owner’s retirement, estate and tax planning. As a result, developing a solid succession plan can often require inputs from multiple outside advisors, including accountants, lawyers, financial advisors and others. To do it right, the process can take not weeks, not months, but years.
Given the complexities, it is small wonder that many entrepreneurs put off succession planning for the proverbial “some other day.” But think of it this way: the challenges of succession planning might or might not be an understandable reason to continually put it off, but they are an unquestionably excellent reason to get started as early as possible. And the costs of not doing so can be high. After all, you never know what is going to happen. You might dream of a day when you can retire and sail off into the figurative sunset, but any number of other circumstances can affect your ability to continue leading your company. Divorce, disability, shareholder disputes or even death, among other things, can all disrupt your future plans.
If you don’t have a succession plan, what happens to your company without you? No one knows who’s in charge, relationships with suppliers might be lost, and key customers might take their business elsewhere. What are the chances your company will continue to thrive – or even survive? If your dealership is a family business, the consequences of not having a succession plan can be even more damaging. Without clear direction, there could well be discord among your children over who gets what and what their roles are – and the history of family businesses is full of examples where inter-sibling disputes have ended up in the courts. Ask yourself this question: after you are gone, will your loved ones still be able to sit around the dinner table and enjoy one another’s company, or will the way you left your business behind end up tearing your family apart?
In short, a succession plan is not just a “nice-to-have”: it is a vital part of business planning, and it can help ensure a secure future for your company and for your family. If that’s not enough reason to get started, then it’s hard to imagine what would be.
The good news is, it’s never too late to get started. But how? Many dealers’ have spent years growing their business, and they only get one shot at succession. The most important initial step is to find someone to help you. A qualified advisor can bring to the table deep experience in helping clients develop and successfully execute succession plans, and their objective perspective can give them insight into issues and opportunities the owners themselves might miss. A good advisor will not only know what they’re doing, but have the confidence to ask the right questions, to challenge clients where necessary and to guide them calmly through an often emotionally challenging process.
Ideally, those advisors have the infrastructure and the connections to ensure a holistic approach; because succession has so many implications from a legal, tax and financial perspective, they should be able to leverage other resources and experts as required. They should also bring an in-depth knowledge of your company and its operations, as well as of your family situation as applicable. At MNP, for example, we have a dedicated team of succession specialists who work with our clients’ current MNP advisors every step of the way, ensuring that clients benefit from both expert knowledge and a familiar partner as they plan out one of the most important decision-making processes they will ever undertake.
With the guidance of a good advisor, a business owner can decide among a number of succession strategies. For instance, they may leave management and ownership of the company to family members, or they might designate management to a senior employee. They could instruct that the business be sold, or that its operations be wound down. Or perhaps the succession plan could set the terms and conditions for an employee buy-out upon the owner’s departure. Which strategy the owner chooses will go a long way toward determining how to handle other considerations, such as tax and legal implications, as well as how to manage family dynamics and those of other stakeholders as the succession plan takes shape.
The point is, every owner is different, and a good succession plan should reflect those differences. Generally speaking, however, there are a few issues that all plans should take into account. One is whether the owner’s succession strategy is subject to approval from other stakeholders. For dealerships in particular, many supplier agreements stipulate that the manufacturer must approve a dealer’s succession plan; without manufacturer consent, the plan could be derailed or at least create costly and time-consuming legal challenges for the successors. It is also advisable to secure buy-in from the bank, since an ill-considered succession might make it difficult for the business to access capital.
One common concern among owners is how to broach sometimes-difficult conversations with family members, especially children, about how to divide ownership and management responsibilities. And it’s not just the kids; other stakeholders’ interests need to be addressed, too. If key employees are not satisfied with the person you choose to succeed you, for instance, they might not stick with the business; your company’s most valued customers might feel the same. So, it’s usually advisable to have candid conversations with important stakeholders as part of the planning process. Here, too, a trusted advisor can be a huge asset. They might be able to have those conversations for you, and their outside perspective could help you develop a more unbiased assessment of stakeholder attitudes. The advisor can bring the right people into the process at the right times, manage the conversations, then take their feedback and incorporate it into the plan as appropriate.
As you can see, a robust succession plan isn’t just a matter of what the owner wants – it is ideally a combined effort, reflecting the realities and the ambitions of the many stakeholders who will be affected by the transfer of the company’s leadership. It is also not simply a piece of paper: succession planning is a process, and its direction should evolve as the owner’s circumstances, along with those of stakeholders and the business itself, evolve too.
For those who have been putting off succession planning, that reality might give them some encouragement. “Planning-as-process” means that you don’t have to do it all at once, and it is not going to be resolved in one meeting with your lawyer or accountant anyway. A more realistic and effective approach is to resolve to tackle your succession strategy in smaller steps, and a good advisor can help you decide which ones to take and when to take them. But before that happens, you have to make the first step on your own – and get started on a plan for the future of your business and your family.
By Michelle Miller
MICHELLE MILLER, CPA, CA is the National Dealerships Leader for MNP. Based in Leduc, Michelle delivers a comprehensive suite of services tailored to her clients’ unique operations to help them improve their businesses and achieve their personal and business goals.
A trusted advisor, Michelle builds strong relationships with clients and gets to know their businesses so she can deliver customized, practical solutions. Over more than a decade, she has worked with owner-managed businesses, professionals, not-for-profit organizations, retail co-operatives, public sector bodies, municipalities, and individuals involved in a variety of industries, including automotive dealerships.
Michelle received a Bachelor of Commerce degree from the University of Alberta in 2007. She is a Chartered Professional Accountant (CPA), qualifying as a Chartered Accountant (CA) in 2010. For more information contact Michelle Miller, CPA, CA at 780-769-7821 or firstname.lastname@example.org.