My greatest fear is that my son with fail if he succeeds me at my dealership."
This recent quote from an auto dealer client of mine reminded me of how important a role emotions play in succession planning. The interesting part is that this dealer's son is doing very well as general manager of a very profitable dealership. So what's the problem?
Like many dealers who started from nothing, you know what hard times are all about.
You probably had to mortgage your home and future and use every penny you had, plus use mirrors to get a financial statement that would allow you to buy into your first dealership. Then for many years you struggled, lying awake at night wondering if you'd be able to make payroll and pay your bills. You knew of plenty of dealers who didn't make it and you wondered if you'd be one of them. You knew that you were to some degree at the mercy of market conditions and the health and popularity of the manufacturer's products you represented.
Finally you turned the corner and began to make some real money. Before you knew it, you saw your net worth growing like a weed. It wasn't long until you were worth millions of dollars.
Yet you didn't feel you were worth millions. You said, "That looks good on paper but I've been in the business long enough to know it can go the other direction." You still didn't feel you were safe or secure financially.
So what does this have to do with succession?
You grew up via the school of hard knocks and it made many indelible impressions on you which impact the way you view your son/daughter's performance in the business. He or she doesn't work the number of hours you did - "How is my son going to know what's going on at the dealership if he's not there?" "What kind of example does that set for the other employees?"
Rather than ask how much time they are spending at the dealership, ask the following questions: What is the bottom line profit and does my son/daughter have the respect of the key employees? If the answers to these questions are positive there's a great probability that they are doing fine, even if they don't do it Dad's way.
"My kid spends too much money!" You worry that he won't be able to cut costs when the market downturn happens - and you know it will. Maybe the problem is your son doesn't have to worry about money because you've made sure there is plenty of capital available. You had to be very careful with every dollar spent but you've never forced him to do the same.
Very possibly you need to look at building assets outside the dealership for yourself rather than always plowing profits back into the corporation, i.e. loaning the S-corp profits back for flooring purposes, etc. This won't be accomplished overnight but it will accomplish two very important things.
First, your son or daughter will have to watch the bottom line and expenses a lot more carefully. That's likely to create a better dealer.
Second, you will gain financial freedom from the dealership which will allow you to worry less about how your son or daughter is doing running your store.
The less you have at risk and the more your lifestyle is not dependent on the business, the more freedom you will be able to give your children to run the dealership on their own. They will make mistakes but that is how you learned - so will they.
"My greatest fear is that my son will fail."
Is that based on facts or just feelings that he is doing things differently than you? If his potential failure means it will impact your lifestyle, then you have to be concerned.
Building net worth outside the dealership will help alleviate that fear. And, quite possibly, the lack of your needing to worry and stay involved will give your son/daughter a greater chance of succeeding.
Hugh B. Roberts, CFP is a partner in the de Vries-Roberts Group in Woodland Hills, CA, a company specializing in succession and estate planning for family- owned auto dealerships.