Part 2. Structures and Process
In part 1 of this series we outlined examples of issues that stakeholders must address before moving on to the task of deciding structures and processes that frame how a transition is planned and managed.
Clear communication is key to ensure there is an understanding by all involved of the vision statement for the family and the business. By having open and comprehensive conversations, obstacles can be identified and strategies can be put in place to manage them.
When planning succession, dealers need to think like investors. It is important to recognize the importance of maximizing value and planning the timing of succession. Identify the key triggers that will initiate a transaction. Determine which benchmarks will be used to value the dealership.
The next generation of leaders/owners needs to have an in-depth understanding of the business, effective management and communication skills. The skillset may different from past generations and should have an added emphasis on multi-tasking and having an effective decision making framework that is consistent with the vision for the business. Regular meetings of stakeholders should occur. This includes family, ownership and management meetings. Each meeting should occur separately and deal with the important issues based upon respective roles in the organization.
Family meetings, potentially the most challenging, can also be the most rewarding when there is a proper framework and effective communication. Ensure that there is an agenda and meaningful family based topics. For example, philanthropy may be an important issue for discussion and input from the family group. Discussions should be within the context of the family’s values. Conflicts that may result from the different stages in life and diverse financial needs of members of the family and their extended families can be addressed in these meetings.
In a family succession, decisions must be made on how earned positions vs. entitlements will be dealt with. Recognize that strong emotions can be part of family business and such emotions may surface during discussions. Having an effective framework for such meetings can assist in managing emotional issues and ensuring that the meetings are a proper forum for family matters to be raised and addressed. This can include the touchy subject of the level of remuneration paid to family members that are involved in the business. Stakeholder meetings are valuable for establishing structure throughout a succession process. With structure in place, professional advisors are now in the best position to create the structure and plan that matches the needs of the family, business, and owners.
Legal and tax structures can be complex. In part 3 we will discuss the implications of the status quo and look at strategies that are used to minimize the tax impact of a transition.
This discussion is based on the Welch LLP webinar “Succession Planning for Automotive Dealers” with Welch LLP Partner Jim McConnery CPA, CA, TEP and Sirius Financial Founder and President Susan St-Amand.