By Kendall Rawls, Director of Development, The Rawls Group
The new year brings change, and with change comes uncertainties often leading to fear, anxiety, and worry of the unknown.
As we enter this new year, we face an upcoming presidential election, which in of itself creates additional unknowns for the future. Will the economy stay strong? Will unemployment stay low? What will interest rates look like? How will technology continue to advance and create change? Do you have a recession-protection plan in place? In short, have you built a foundation for your business to stay agile and flexible in the face of change?
If there is one thing that is for sure, change is imminent. It is the one constant on which we can count. However, just because we’re not sure of what the exact change will be does not mean we should not have plans in place to handle them. With that, there is a lot that goes into this type of planning. It can get so complex that dealers either don’t engage in it or tell themselves they are not there yet.
We take the complexities of the planning and break it down into consumable intense focus areas. We call this the Succession Matrix®, and these 10 key areas build business value today and into the future, while achieving your succession goals:
1. Owner Motivation & Perspective. As business owners, your dealership(s) ultimately take on your values and priorities good or bad. Just as your outlook on life sets the tone for how happy and successful you can be, your motivation and perspective with respect to the business establishes the operating direction and performance expectations. Your view as the owner frames the values and practices of your business, which in turn impacts profitability, efficiency, enthusiasm, innovation, customer satisfaction, and the sustainability of success.
Your relationships with family members, key managers, employees, strategic vendors, creditors, and franchisors are all significantly affected by your attitude towards the business. Communication of your goals and priorities to all those involved in the business is critical to achieving buy-in to your vision of success. As the business owner, you establish both the limitations and possibilities of business growth on longevity through multiple generations.
2. Personal Financial Planning. This initiative involves using the fruits of your labor to build personal financial security independent of the business. Having a personal financial wealth development and management strategy will provide you with the freedom to consider all viable business exit strategies without being forced into one solely based on your personal financial needs.
The development of an efficient estate plan will protect your accumulated wealth critical to you and your family security. A proper estate plan can maintain your privacy as you equitably transfer your wealth, including the delicate business enterprise to appropriate family members and charities. Personal financial planning also provides the foundation for developing credit worthiness and transferring credit guarantees to family or key manager successors.
3. Business Structuring. The structure of your business has a direct impact upon items such as business taxation, control of business ownership, gift and estate tax on business transfers, and shareholder access to cash flow. As a business owner it is critical that you or an experienced advisor understand the details relating to corporate structures and agreements between directors, owners, and key managers as they have a significant influence upon your businesses success and longevity.
Appropriately designed, communicated, and coordinated stockholder, operating and partnership agreements provide confidence in anticipated business value and ownership rights. The primary purpose of these agreements is to preclude featured disagreements that may handicap the attitudes and enthusiasm of shareholders. Well-thought out and documented business agreements provide greater certainty that your expectations as a business owner will be fulfilled.
Another benefit to using effective business structuring techniques is their ability to help motivate and retain key managers. Employment and golden handcuff agreements can provide you confidence that key managers fully understand their responsibilities an incentive compensation that is intended to promote career commitment. These agreements can also provide documentation referred to as non-competition covenants that give you greater peace of mind that a terminated or retired key manager will not become a competitive liability in your immediate market.
4. Business Performance. Before succession can occur, your business must first achieve and maintain a high level of performance. Due to the challenges associated with management and ownership transition, there is generally a predictable drop in profits. For that reason, a constant review of business performance metrics is critical to generate sufficient profits before the time of transition to fulfill reasonable cashflow needs and expectations through the next generation.
Evaluating the performance of your business involves more than just looking at money and profits. Other critical areas include looking at where your business stands compared to your competitors, ensuring that your company and employees are working as effectively and efficiently as possible. Also, you must consider how your business is prepared for the future with respect to technology advances, market changes, contracting margins, and more demanding customers.
5. Strategic Planning. This process is a collaborative initiative in which you, supporting family members, and key management discuss and confirm the vision and mission of the organization, as well as the resources needed to achieve business goals. The outcome of the strategic planning process is a detailed action agenda that addresses items such as short-and long-term goals, operating methodology, talent recruitment, effective business structuring, an effective communication.
The strategic plan will then serve as the road map for future business and succession decisions. Engaging in this planning process periodically provides the opportunity for reality alignments. Adjustments should be made to the action agenda items when circumstances change and the resources available no longer equal the resources needed to meet your desired goals.
6. Leadership and Management Continuity. A great deal of the business value is locked in the resourcefulness, commitment, enthusiasm, and teamwork of your management team. Your management team’s ability to optimize your business resources to achieve performance goals is crucial to the current and future success of the business. Therefore, the identification, motivation, and retention of highly qualified managers and employees is essential to building business value, sustaining business performance, implementing strategic plans, and consequently the achievement of your succession goals.
7. Management Synergy and Teamwork. Teamwork extends to your business partners, supporting family members, aspiring successors, key managers, employees, vendors, advisors, and of course, you as the owner. However, teamwork is not a natural behavior in business. Those involved tend to be competitive, ambitious, aggressive, and want personal recognition. But team dynamics can be taught, supported, and ultimately embedded within your company’s culture if all involved are truly dedicated to high quality, high performance, and high customer satisfaction. As the business owner, it is critical that you set the standard for teamwork and encourage everyone involved in your business to become team players who work in alignment towards the achievement of your business goals.
8. Successor Identification and Preparation. There are six key attributes for evaluating your potential successors: availability, competence, character, commitment, capacity, and community. Some successors are obvious based upon their demonstrated performance and potential. However, most successor candidates must be identified and reviewed based on their talent and past behaviors. These candidates may be key managers or family members. Whoever you identify and ultimately select should be a representative and leader of success.
To prevent unreasonable heir to the throne assumptions of potential family member successors, you must establish reasonable expectations for full-time employment and performance accountability. This is accomplished by creating a personalized and well-developed successor training curriculum, which details their path for gaining experience in all critical departments of the business. This career development path not only sets expectations and accountability for growth, but also helps them earn the respect of key managers.
9. Family Governance and Family Dynamics. Families come in all forms, shapes, and sizes, including in-laws, cousins, children, stepchildren, and even business partners who are also best friends. The relationship you have with those in your formal and informal family have a positive or negative impact on the achievement of your business goals and succession vision. Bickering among active and even inactive family members can frustrate, distract, and weaken the focus and commitment of the management, including you. In recognition of the conflicting cultures of family and business, harmony and unity are generally the byproducts of commitment, hard work, and sacrifice.
Establishing forms and processes that promote effective intrafamily communication is critical to achieving and maintaining the family dynamics and family governance needed to build a strong business that can be sustained through multiple generations.
As we enter into this new year of change, consider these ten areas which significantly impact each other. Issues in one area can greatly alter items addressed in another area. Ensure you are ready for the unknowns of the new year and build your plan to ensure your ability to protect your business, family and ultimately, your legacy.
About the Author
Kendall Rawls knows and understands the challenges that impact the success of an entrepreneurial owned business. Her unique perspective comes not only from her educational background; but, more importantly, from her experience as a second-generation family member employee of The Rawls Group – Business Succession Planners. Email: [email protected]
