1. Establishing Goals & Objectives
__ Identify the need for a succession plan.
__ Develop the vision, goals, and objectives of the business.
__ Determine the importance of family involvement in leadership and ownership of the company.
__ Establish personal retirement goals and cash flow needs.
__ Identify family members’ goals.
__ Determine the need for an outside facilitator.
__ Establish team of professional advisors (attorney, CPA, bankers, financial advisors, insurance specialist).
2. Decision Making
__ Involve family members in the decision making process.
__ Establish a method for dispute resolution.
__ Document the succession plan in writing.
__ Communicate your succession plan to family/stakeholders.
3. Successors
__ Identify your successors – both managers of the company and owners of the business.
__ Obtain approval of successor(s) from the manufacturer/franchisor.
__ Ensure that your franchise agreement identifies the proper dealer and successor in alignment with your succession plan.
__ Identify active and non-active roles for all family members.
__ Identify required training for the successor(s).
__ Provide necessary training to the successor to ensure the future of the business.
__ Will the retiring owner remain involved in the business? If so, define the role.
__ Provide counsel and support to successors.
4. Estate Planning
__ Address taxation implications to the owner/business upon sale or transfer of ownership.
__ Does your estate have enough liquidity to pay for estate taxes?
__ Have you considered a buy sell agreement?
__ Develop estate and personal financial plan for owner, spouse and succeeding generation.
__ Provide for active and non-active family members (consider providing non-dealer related assets to non-active family members).
__ Will non-active family members receive an equitable share of assets?
5. Consider the Transfer Methods and Corporate Structure
__ Various options should be generated and considered to address as many family and business needs as possible. At a minimum, one needs to consider the following and document your conclusion:
- Method of transfer may include outright purchase, gift / bequest, or a combination thereon.
- If the business is to be purchased, financing options need to be considered, including financing from an external party or will the previous owner hold the loan.
- If the business will be purchased, ensure the business can generate adequate after-tax cash flows to support debt and interest payments.
- Tax strategies and implications.
- Legal implications.
- Business structure options (e.g. sole proprietorship, partnership, corporation, etc.)
- Business/franchise agreements.
- Insurance needs (health, life, disability, etc.) have been considered.
6. Contingency Planning
__ Identify potential problem areas.
__ Dispute/conflict resolution mechanisms have been considered and addressed in business agreements.
__ Develop “what if” scenarios including action plans (including possible disability of yourself and your successor).
__ Do you have a plan in case you become permanently disabled?
7. Business Valuation
__ Obtain appraisal to determine fair market value of business and real estate.
8. Exit Strategy
__ Determine method of transfer.
__ Establish a timeline for implementation of the succession plan.
__ Publish the plan so that affected individuals are aware.
__ Communicate regularly with all affected parties.
9. Implementation/Follow-Up
__ A timetable has been established and is being followed.
__ Review the plan on a regular basis and update as necessary.
10. Document Maintenance
__ At a minimum, the all the following current documents are maintained in a file:
- Legal will
- Power of attorney(s)
- Franchise agreement
- Property deeds/titles, leases, rental agreements etc.
- Mortgages and notes payable
- Tax returns, financial records and financial statements for last five years
- Bank, brokerage, savings and retirement account information
- Contact listing of all professional service advisors
For additional information regarding the succession planning for the automobile dealership industry, please contact Paul McGovern at 800-849-6022 or pmcgovern@downeycocpa.com.
