Many have heard the news and read the articles that consolidation is the future of the auto business. The big corporations are diligently working to squeeze out the little guys, putting smaller operators behind the curve wondering if they can survive. As the business gets tougher, it appears the message continues to get out while the value is still high. To add on, innovation and crowdsourcing are also making the traditional retail automobile business question itself as to how consumers will acquire cars in the future. Therefore, the noise continues to get louder and louder in regard to the articles, podcasts, and analysis that says you either need to grow or get out.
In many cases, an external buy-sell is the best and only option; no successors are available, the deal is just too good to be true, or the grind has done you in. In the same amount of cases, however, working toward an internal buy-sell can provide many of the same benefits of economic prosperity and many alternative benefits of including those that are intrinsic, that preserve your legacy and hard work.
As anyone who has gone through a purchase or sale of a dealership knows, it is hard work! Pursuing an internal buy/sell often times is harder and does not come without its challenges and requires answering many questions.
Are there successors in line who are willing, capable, and ready to take the reins? If not, what steps need to be taken to coach them up? Until they are ready, do you have a “succession bridge,” or a trusted partner or very special key employee who has my best interest at heart, available to lean on and mentor your successor so you can get out of the way. Once the successor has been identified, how do you structure the transition of leadership, the chain of command, and ownership? Are you financially independent from the business, so you aren’t depending on profits to support your lifestyle? Do you feel confident you will receive the value you deserve while also providing an opportunity in ownership to your successor? What covenants need to be developed, agreed upon, and put into place between you and your successor while you are dependent on them to operate the store, but they are responsible for servicing a note to you. What is the ultimate exit strategy that separates you from the day-to-day realities of the auto business? If there are no family successors, who do you identify internally to become partners with to ensure they maintain the culture you have worked hard to develop into the future. These and many more are the questions that need to be answered to feel confident you can proceed with an internal buy/sell.
But many of you may be thinking; “why bother?” Many of these questions seem like topics you would rather not think about at a time when you are either considering the future of the automotive business or debating your exit strategy. From a practical standpoint, I could agree. Selling to the highest bidder, taking your money, and being on your way has its advantages. But when we are talking about a business that you most likely have spent decades building, which has people in it that you have employed, built lives for and invited into your family, and have the opportunity to see the next generation of successors succeed in ways you have, why would you not consider the every opportunity to seek an internal buy-sell.
And many of you may be asking “Why work to stay in the business?”
Let’s start with legacy: If it means something to you, then we could stop hear. The continuation of a family business to capable and committed community-minded successors or the perpetuation and opportunity you provided for key managers to become owners is a noble cause and one where I would say you have the most potential invested. In most cases, you have built the company, put your name on it, and have invested your blood sweat and tears into its success. Ensuring that the next owner/operator keeps many of the same people, customs and culture is important to you. That’s why an internal buy/sell ensures your legacy continues with the people you have selected to take over.
Ownership: Continuing to stay involved provides you the purpose and economic interest in businesses success. Any form of a protracted buy-sell can be created to make your successors earn their way in and provide a runway for you to determine their ability thus creating a win-win for both parties.
Ancillary Benefits: Needless to say, the car business provides many other benefits than pure profits. The cars, the trips, the awards the ancillary businesses are just a few of the many benefits that coincide with your continued involvement in the industry.
Opportunity for family and long-term employees: Providing family in a business the opportunity to grow into the leaders of tomorrow is a worthwhile endeavor. I will be the first to say, it will be a challenge, but the rewards are plentiful. Continuing the culture that you have built also ensures you continue to provide an opportunity to the long-term employees who have made you a success.
Community: Many dealerships have been a part of their local communities for decades. You have given to the local charities, supported the youth teams and raised money for charities. Staying involved and in business ensures you can continue to support and be a part of the communities you live in and do business.
These and many more are the reasons to consider when asking yourself, “Why work towards an internal buy-sell versus (transition of ownership) versus selling to a third party?” While your friends may be selling, or you’re getting the calls that go around the industry, I suggest you consider the above when looking at your situation to determine whether the right course of action is an external or internal buy/sell. Each will have its merits and challenges but only one keeps you in the game.