Common Challenges When Succession Planning and How to Counteract Them

November 2, 2022

Succession planning is essential if an automotive dealership is to survive into a new generation of leadership. With a working succession plan, a smooth transition is all but assured – without one, every aspect of the future of the business is in question. 

Think of succession planning as the foundation of your vision for your dealership’s future. It functions as a blueprint that lays out the plan for where you want your business to be, long after you have chosen to put down the reins. It includes your plans for putting into place the next generation of your family’s dealership management. It also details your own well-deserved retirement plans and the resources that will be provided for it.

When is the best time to start your succession planning? Experts all agree that it’s right now! The sooner that you formulate your succession plan and put it into place, the sooner you can start enjoying the benefits it provides – to both you and your successors.

For those of you who believe that a dealer principal can just smoothly glide through the succession process without a well-developed plan, consider this: Only 30% of family-owned businesses manage to make it to the second generation of ownership, with a tiny 12% reaching the third generation, according to Gallup.

Related reading: Common Mistakes Made by Organizations During Dealer Succession Planning

Common succession planning challenges

But while succession planning is necessary, it’s not always easy. Succession planning is a complex process with many moving parts. Challenges can arise, but with an experienced partner like DCG Acquisitions, they can be predicted and overcome. 

At DCG, we have assisted a wide variety of dealer principals in creating their own succession plans, tailored to the specific needs that arise for themselves, their dealerships, and their families. Here are some common succession challenges and the solutions we have developed for them: 

Disagreements between family members about specific terms: After working in the business with your family members for a period of time, you likely know who you’d like your successor to be. You also probably know where any other relatives should be placed to serve the interests of the dealership in the best possible way. Before you proceed any further, you and your team need to speak with these individuals about their interest in continuing to the next level in the positions you see them in, as well as the terms spelled out in the succession plan. 

This is the point at which the family dynamics of the business can come into play. There is no way of completely separating the family from the business, but you can assess these family members’ interest and willingness to continue in the roles you have chosen for them. 

If you should hit any roadblocks as to the terms contained within the succession plan, we recommend trying to resolve these conflicts with family members by bringing in a mutually agreed-upon third-party mediator. Mediation can be quite a beneficial process because:

  • It is informal and flexible
  • It is private and confidential
  • It is quick and inexpensive
  • It gives the parties more control over the outcome
  • It preserves existing relationships
  • It provides results that are mutually satisfactory
  • It forms a basis for cooperative solutions to any future problems

Read more: Navigating Obstacles in Auto Dealership Succession Planning

Uncertainty regarding specific parts of the dealership’s financials: Even though you may be planning for your family members to take over the dealership, there is still a financial transaction to be negotiated. As such, your books need to be able to stand up to scrutiny. 

Any irregularities or gray areas need to be cleaned up and eliminated right away. You should expect that your successor and any other family members involved will bring in their own accountants to dig down deep, verify whether your numbers are accurate, and make a determination about whether to proceed. Any undisclosed surprise that is unearthed could tank your plan right then and there. Your family members could rightly see this as a betrayal of their trust, and that’s not good!

This is where DCG can help. We will typically do a deep dive on the numbers ourselves, before your family members take a peek. We like to determine that your numbers are solid before presenting them to your next generation. Another option is to do a targeted audit, bring in an independent accountant, or get a CFO consultation to reveal the truth behind the numbers. This allows both parties to move forward with confidence.

Doubts as to future direction: How do you see the future of your dealership? Do you see it expanding through acquisitions or being sold to build up another dealer group? You probably know which direction you’d like your store to take – but how does your successor see it?

This is where a meeting of the minds can really help. Sit down with the person who will be taking over for you and lay out your vision. This should include your revenue projections, any near-term needs for renovations and EV upgrades, projected growth of your region and its demographics, and any other influencing factors. 

So far, so good. Now gather your successor’s input and insights as to where he or she sees the best opportunities for the business going forward. Combine this all into a multi-year action outline with accompanying timeline, creating a roadmap for the future that you can both agree on. Now there is no doubt about the future!

Other challenges you may encounter along the way: These will vary based on your actual circumstances, but can include:

  • Failure to include funding for estate planning and tax expenses related to the transition
  • Lack of any accommodation for children who will not be involved in the business
  • Not planning for what will happen if you should die prematurely
  • Neglecting to get factory approval for your successor
  • Not providing for continuing dealership financing in the name of your successor
  • Leaving your non-family management out of the process, risking their continued participation in the business

DCG Acquisitions is the succession planning expert

DCG is here to assist you with every step of your succession planning process. Our firm has many resources and knowledgeable staff members available to help dealerships through every aspect of this complex but necessary task. 

At DCG , we have guided numerous dealer principals in setting up succession plans that align with their goals, values, and vision. We know well what it takes to develop, present, and roll out a succession plan across an organization like yours.

Contact us to discuss a truly comprehensive succession plan for your auto dealership. We will assist you in every conceivable way to provide the smoothest possible transition when the time comes for ownership to be transferred.

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