Preparing the family for the family business
The dealer market is filled with second- and third-generation family businesses.
But in order for those businesses to remain “family” operations for generations to come, they will need to pass on from one family member to another. And if you’ve ever done that before, you know it’s not easy.
Creating a succession plan and transferring ownership of a business is a long and extensive process. It takes years of careful planning, preparation and execution to succeed.
It’s the kind of thing you need to start on today if you plan to retire in 2020.
Allen Phibbs, professional advisor at KEA Advisors, says a dealer principal’s first step toward building a succession plan in a family business is seeing if any of his family members actually want to be in the business. The idea of a fifth-generation business family business can be enticing for a second-generation owner, but he has to have a relative to pass the business on.
Phibbs says dealer principals who hope to pass on a family business when they retire need to active in looking for successors while they are on the job. This can start years, even decades, before the dealer principal actually plans on retiring.
It’s during this time that a dealer principal should create a timeline with an exit strategy and multiple succession plans. Even if a potential family successor has been found, Phibbs advises dealers to create a strategy for exiting the business through a family succession plan or a straight sale.
After the timeline is created and the successor is identified, it is imperative for the dealer principal to make sure the next-generation owner learns about the industry, the OEM and the business.
It is best if this is done over several years, says Keith Ely, managing partner at KEA Advisors, with the successor slowly working his way through the business or another company in the industry.
There also should be constant communication from the dealer principal to the successor during this time. The successor needs to know what is expected of him to move up in the business, and Ely says the dealer principal needs to keep him informed of his timeline.
“You have to lay out all of the information. What is Junior’s role going to be? What is his career path?” he says. “[The successor] needs to know what they need to do to get from Point A to B to C and beyond.”
Contact with your OEM also is essential at this point, says Ely.
Future dealer principals must be approved by OEMs before being taking over a location. If you want to move your son or daughter into your office one day, Ely advises they spend time working with the OEM now. A strong relationship can accelerate the approval process.
“The OE wants someone who is best going to represent their product in that area,” he says. “You want to show that your successor can do that.”
In addition, Phibbs adds that it’s important to keep the dealership’s management team informed during this process. Having a strong, dedicated staff to support a new dealer principal can be a wonderful asset, but a retiring principal should not expect his staff to blindly follow his successor without notification.
Trust needs to be built up between the staff and the potential leader, as well as the succession plan overall. Ely says employees have to be confident the business is moving in the right direction.
“It can be very dysfunctional if [a dealer principal’s] vision isn’t clearly defined to the employees,” he says, adding that uncertainty and confusion also can lead to employee turnover, making the transition even harder. “Whether the transfer of ownership is 10 years out or tomorrow, you have to have a strong management team in place to support both owners and keep the business running smoothly.”
At CRTS Inc., CEO Tommy Crowder, Sr. is relying heavily on his management team to execute his succession plan.
CRTS was founded in 1971 by a friend of Crowder and he joined the business that year. Over the last 42 years he has built it into a six-location, five-OEM trailer dealer serving Virginia, North Carolina and South Carolina.
He hopes to one day pass the business to his two children currently working at CRTS, but says he wants them to become comfortable with the business, its customers and employees before passing it along.
In the meantime, Crowder has relied on Mark Taylor, a 24-year veteran of the company, to help him lead the organization as its president. The two have worked together as CEO and president for 11 years, and Crowder says he hopes they can continue to do so until reaching retirement age. Then, when it’s time for them to step aside, both believe Crowder’s children will be prepared to take over.
Taylor says CRTS’ employees are aware of this timeline as well, which keeps business running smoothly.
“We’ve tried to make a concerted effort to make sure everyone is aware of how things work,” he says.
John Shireman, president at Uhl Truck Sales, says his father, uncle and grandfather did the same thing in passing their business on to him.
Now the third-generation owner of the southern Indiana and Kentucky-based dealer group, Shireman says he’s grateful for the time they put into their succession plans.
“That transition to this day surprises me. I was very pleased with how smoothly it went,” he says. “I think one of the reasons why is that my grandfather was such a good teacher. He knew to get everything in place and spent time doing the right things. So when my father and uncle passed it along, they knew what to do.”
With eight family members currently working in the business today, Shireman is optimistic that he will one day be able to pass the dealership over to a fourth generation. When that time comes, he’s going to work hard to follow the template drawn by his predecessors.
“There is a real sense of pride in running something that is three-generations old,” he says. “You want to keep that going.”
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