Enhancing business value, maintaining family ownership continuity, and effectively growing the business as a car dealer all rely on a solid succession planning strategy.

In today’s competitive landscape, family-owned dealerships must be proactive and vigilant to stay ahead amidst industry consolidation and evolving norms. By leveraging valuations, you can gain valuable insights into underperforming stores and guide your strategic initiatives.

Additionally, being aware of common triggering events that require valuations puts you in a position of knowledge, enabling you to navigate seamless growth and succession strategies while avoiding potential complications.

1. Understanding Triggering Events

Triggering events are unforeseen circumstances or specific situations that can influence the valuation or potential transfer of ownership in an auto dealership. These events, if ignored, can pose significant risks to the operational and financial stability of the dealership.

2. Common Triggering Events in Auto Dealerships

Recognizing the purpose for valuations is crucial for proactive planning and ensuring the business’s longevity.

For instance, Dan Iosue of The Rawls Group explains the gravity of sudden life-altering events. “When one [partner] dies particularly unexpectedly… we’ve got to get a valuation… if we’ve got a potential divorce or disability, we’re going to need a valuation.” This insight from Iosue emphasizes the critical nature of immediate valuations in the wake of unforeseen circumstances that can affect the dealership’s leadership and ownership.

Some common triggering events that dealership owners should be aware of include:

• Death of a Principal Shareholder or Partner: The sudden demise of a key stakeholder in the dealership can necessitate an immediate valuation for estate purposes, potential buy-out considerations, or to meet any tax or legal requirements.
• Divorce or Separation: Especially in family-owned businesses, the divorce of an owner can have ramifications for business ownership and may necessitate a valuation to equitably distribute assets.
• Disability: An unexpected disability that affects an owner or key shareholder’s ability to manage or contribute to the dealership might trigger buy-sell provisions, necessitating an evaluation of the business’s worth.
• Retirement Plans: An owner or major shareholder’s intention to retire can initiate succession planning processes, starting with a valuation to understand the business’s current market position.

3. Why Recognizing Triggering Events Matters

When it comes to the valuation of auto dealerships, timing can’t be an afterthought. The volatile nature of the business means that values can fluctuate significantly in a short period.

Scott Womack of Mercer Capital puts it succinctly: “You wouldn’t want to have a large time lapse between the contemplated triggering event and either the date of valuation or when the valuation is performed.” Womack’s observation suggests that the closer the valuation is done to the triggering event, the more accurate and useful it will be for the business’s succession planning process.

Strategic planning is a powerful tool that helps identify the necessary resources, including people, time, money, and technology, to achieve your goals. It goes beyond that by enabling owners and leaders to address and proactively tackle potential issues that may impact their objectives.

By developing strategies to overcome these challenges, strategic planning puts dealers in a prepared position to face whatever the future may hold.

Therefore, it is crucial for dealers to understand the different valuation triggering events for several reasons, such as:

• Avoiding Business Disruption: Proactively handling triggering events ensures that the dealership can maintain its operations without major disruptions.
• Protecting Business Value: By recognizing and addressing these events promptly, dealership owners can protect and even enhance their business value through strategic planning initiatives.
• Ensuring Compliance: Regulatory, tax, and legal requirements may necessitate prompt valuations or changes in ownership structures. Recognizing triggering events helps in meeting these requirements efficiently.
• Facilitating Smooth Ownership Transitions: Timely action post a triggering event can pave the way for smoother ownership transitions, ensuring the dealership’s legacy remains intact.

4. Take Control Over Your Car Dealership’s Future

Auto dealership owners need to adopt a forward-thinking approach, constantly staying aware of the potential scenarios that can influence their business’s continuity and value. By understanding and preparing for these triggering events, dealers can ensure they are in a position of strength, ready to make informed decisions that protect their business, employees, and legacy.

It’s not just about knowing what your business is worth; it’s about preparing for the future and securing your family’s legacy. By recognizing and addressing triggering events, car dealers can ensure the longevity and success of their ventures.