You Need a Succession Plan

You are healthy and enjoy the car business. You have no reason to be concerned about a succession plan, right? Well, not so fast.

Companies important to your business — notably your franchisor if you are a new car dealer and your lenders — worry a lot about your succession plan. No matter how healthy you are, what will happen to your business if you step off a curb and get hit by a bus? Who will be in control of the dealership? Will you have quality management to successfully continue your business? Will your business have the financial strength to survive?

These are not answers about which your franchisor and your lenders should have to guess. You should have a sound succession plan.

What should that look like? One cannot describe a one-size-fits-all plan to suit everyone. Each dealer will have his or her own situation, and the structure of the succession plan depends on what businesses the dealer has, what real estate is involved, the dealer's family situation, and numerous other factors.

Here are some things to consider:

Planning Team

Sound succession planning requires teamwork. You must involve your estate/tax attorney, your business attorney, and your accountant. They must work together to develop an effective plan.

Estate Plan

The place to start is with your will. Yes, you absolutely must have a will! To whom will you leave your estate? Will you use trusts in your planning? How will your estate be structured? Should you be making gifts to family members? Only a qualified team can help you design this. With estate taxes returning with a vengeance in 2011, a state-of-the-art estate plan is a necessity.

Funding

If something happens to you, how will the transition to a new control and management structure be funded? Will unencumbered business and personal financial resources be sufficient so that there are no critical funding shortages during the transition? Will there be insurance funds available to help overcome short term financial dislocation? More importantly, how will you fund the payment of estate taxes that return as a major concern in 2011? Planning for this will require the combined efforts of your entire team working with an insurance professional.

Who Will Be in Charge?

If you die tomorrow, who will be in charge? How will the company continue? Answering these questions is a critical aspect of any succession plan.

Designate your successor. Make sure the person is knowledgeable and experienced and understands your wishes. What steps must be taken to calm fears in the event of your death? What incentives can be used to prevent loss of managers and employees?

Continuing Operations

How will the business be operated for the long run? Is your designated successor qualified to successfully operate to maximize returns? Will a franchisor have faith in that person based on experience? Will your lenders have faith in that person and continue funding your company? If your successor is not one of your heirs, will your surviving spouse or other heirs be qualified to oversee the management or will that structure lead to friction? Will your heirs be seeking to sell the business, and what guidance can you give in that regard?

Future Planning

Lenders or a franchisor that are unsure of your company's future will factor this into any decision-making process involving you and your business. Don't leave this to chance. A dealer with a solid succession plan is one in which franchisors and lenders can have confidence that they can support your future endeavors.

Attorney Michael Charapp, with Charapp & Weiss, LLP, represents dealers. He is at 703-564-0220 or [email protected].

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