Leadership Succession Planning for Your Business

You’re one of the lucky ones. Your business is running right because you have key positions filled with exemplary people who will be on board long-term. The business is profitable and all is right with the world. Or is it?

What if one of your C-level executives is sick, but doesn’t know it. Soon, this person will have to leave for intensive treatment and you will have a hole in your company that can’t be immediately filled. Perhaps one of your managers is about to be lured and scooped up by a competitor. The logical plan for many companies is to move someone up internally to fill the void, but that’s sometimes worse than keeping the vacancy unfilled. What will you do?

Once again, this is a situation where planning is the key. A strong program of succession planning can change a panic situation into a smooth transition if you are properly prepared. Let’s look at some ideas:

Compensation – Training – Promotions – Competition

• Are your current people properly compensated? You are less likely to have people leave your company if they are competitively compensated. Be aware of what other companies pay their people and try to stay one step ahead.

• Are your second-tier people competent to step up if needed? You should consider long-term roles and goals for every employee in your company. From the ground up, training and education for future roles will make succession strategies easier. It will help build the overall strength of the organization.

• Timely promotions. If you’re going to invest in training, there must be a reason for the employee to stay engaged and interested. Promotions. A strategic plan that is properly executed and communicated to everyone will maintain a sense of balance and security.

• Stay aware of other candidates. There several ways to stay aware of what other companies are doing with regard to personnel. It’s not a bad idea to keep up with who is holding key positions with other companies. However it’s important to understand that if you view a profile on LinkedIn, for example, that person will be aware that you did. Always maintain confidentiality.

Leadership Succession Planning

No one is irreplaceable, and people need to be replaced. Planning for this inevitable situation is prudent. If you have questions, I can help. 612-294-8730

Family Business Ownership Transfers

Every family business wants to succeed with harmonious working and profits at the end of the day. Because families are by nature sources for disagreements, it is often difficult to keep a happy atmosphere. Planning will go a long way towards maintaining profits and peace.

When a family business operates for many years with a single person in charge, there will eventually be a change in leadership. Options are to sell the business to someone not connected to the family or transfer it to a family member. The goal in case of a family transfer is for the business to move forward and remain profitable. However, family transfers are traditionally sticky situations and it is a delicate process.

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A Famous Family Business

One famous family that did’t handle control or transfers of control well were the Guccis. They made leather goods in Italy in the 15th century and the modern Gucci Company was formed in Florence in 1906. For the next 80 years, the family fought like cats and dogs and the empire was eventually sold in 1988.

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The time to plan for a transfer of ownership from parent to child or children is now. Today, a son committed to take over the family lumber company or meat market might go to college and become a rigid conservationist and a vegetarian. What then? Another family member might be completely indifferent to the family business but when a parent passes away they suddenly wake up and smell the money.

Smart families avoid these types of situations when they hire an experienced business planner. A solid plan puts everyone in the loop on what direction the company is headed. Working through a family transfer should be  handled by someone with experience.

Experienced Family Business Consultant

Kirk Kleckner has many years of experience helping businesses plan for successful transfers. Please see his credentials here, and call 612-294-8730 to arrange a consultation.

The Importance of Early Dealer Succession Planning

Not everyone looks forward to retirement. Many people, especially those who are in positions of control, power, and esteem, enjoy going to work every day and really don’t like the thought of puttering around the house or going on cruises for the rest of their lives.

When you own an automobile dealership, you might have your name on giant signs and billboards, little league baseball team uniforms, and on the rear ends of a third of the cars in town. As Mel Brooks said in History of the World, Part I“it’s good to be the king.”

“Failing to plan is planning to fail” – Ben Franklin

Business Succession Planning is a process that leads to future transfer of management responsibilities, dealership value (owner wealth) and entity voting control. Most optimized plans lead to three transfers being made at different times.

According to studies 70% of business owners will do some form of succession planning. The challenge for the 70% is effective planning. Its is more than naming a franchise agreement dealer successor.  Primary drivers of effective succession planning include starting early, dedicating sufficient time to important matters discovery, preparing the business and stakeholders for the decisions to be made, communication amongst stakeholders and following an intentional process.

Succession planning is one of the most important tasks the controlling owner will ever face, and often involves emotional issues because it may involve family. Why start it early? None of us are guaranteed a long life, and sometimes things happen we don’t want to think about. Succession planning is a process that takes time and if done well creates incremental transferable value by preparing the business for greater success that would not happen without the planning.

Remember that the root of the word succession is success. It’s important that everyone involved in a transfer of ownership put personalities aside and focus on success. We have dealt with situations involving hundreds of different types of skill sets, qualifications, experience, and personalities and we understand the auto industry and the financial consequences of structuring transfer , including tax laws. We are available for a consultation if you want to get started on your succession plan and we can be reached via the below contact information:

5810 78th Street, Suite 300

Bloomington, MN 55439

Kirk Kleckner cell (612) 294-8730

Office (612) 294-8730

Fax (612) 435-6241

E-mail kklecknervaluationusa.com

A Guide for the Automotive Dealership Owner

Social Media Marketing on the Top 3 Platforms: a guide for the automotive dealership owner

The 2014 CMO Council report on social media within the auto industry revealed findings that, for the third year in a row, potential car buyers ranked social media and review sites as the most helpful when choosing a dealership.

• 23% or one out of four car buyers use social media to discuss or communicate a recent purchase experience.
• 38% of consumers report they’ll consult social media next time they purchase a car.
• 84% of all automotive shoppers are on Facebook and 24% used Facebook as a resource for purchasing their last vehicle.

An automotive dealership expert knows that your dealership’s social media platforms and reputation are clear factors in your customers’ decision-making processes. By now, most business owners are aware of the importance of the use of social media in their marketing efforts. This could simply include managing a Facebook account and making posts of photos and content, or it could mean a more comprehensive plan using a variety of platforms to attract interest and interact with potential buyers. With the ever-growing reach of social media in our daily lives, it is time for the automotive industry to become more fully engaged in the social media landscape.

Here are 3 platform-specific social media tips for car dealership marketing:

1.) Facebook: where your customers live

As 84% of your customer base has an active Facebook account, this is a great place to start if incorporating social media marketing is a new endeavor for your dealership. Create ads and promote them for those users who have demonstrated interest in a new vehicle. Facebook ads can be created specific to specific criteria such as geographic location, make and model, or even gender and interests. These are investments that are well worth it as they are found to be twice as likely to show click-through results than the average Facebook ad.

2.) Tweeting to close a sale?

A study recently revealed that in the year 2013, Twitter drove $716 million in care sales. This study by Marketshare brought dealerships’ attention the undeniable marketing potential of this specific social media platform, and Twitter still remains a popular choice among prospective patrons. Canvas data has reported that more than 327,000 auto-related tweets are posted each day, 75% of which are directly related to owning or shopping for a car. Using keyword-specific searches within the app, such interest can be detected and responded to via an internal direct-messaging system.

3.) Instagram: the millennial’s stomping grounds

Facebook completed a survey which discovered the millennial trend of leaving Facebook and redirecting their attention to Instagram. This application, mostly used on cell phones, is based on photos. This includes taking, sharing, and posting photo and video content to your personal account, while providing the opportunity to interact with content from other users. This platform provides a unique space to colorfully present your dealership’s brand. The application also allows for private messaging which can be used to respond to customer interest.

Consult an automotive dealership expert witness today to find the right social media approach for your dealership!

Valuation of a Dealership Business

Engage a Qualified Appraiser with Substantial Industry Experience

Dealership business valuations are necessary or advisable for many purposes like buy-sells, business planning, business succession planning, transfer of ownership interests to family members or managers and litigation. Many are surprised that often for the existing owner(s) dealerships are worth more sold than held. An effective valuation examines many attributes and factors, both positive and negative, before accurately concluding a final value.

Dealerships have important and often unique business attributes. The industry is changing fast and has a direct and immediate relationship to the economy. There are typically numerous available potential buyers willing to pay a premium. There are too many vehicle manufacturers and their individual prospects significantly impact dealership values.

Most dealership businesses and controlling interests are valued based upon the conceptual formula: Dealership Business Value = Dealership Tangible Assets’ Values + Intangible Assets’ (Blue Sky) Values. In today’s dealership buy-sell market it is not uncommon for a dealership to be worth more sold than operated!

However, dealership non-controlling ownership interests are most often valued based on expected future cash flows to the subject ownership interest. Because of this and the limited market for non-controlling ownership interests, non-controlling ownership interest values typically are far below their proportionate value of the business as a whole.

There are literally dozens of factors to research and evaluate when determining the value of dealership tangible and Blue Sky assets. Primary Blue Sky value considerations often include the following:

The Dealership’s Franchises                                          

All other valuation factors being equal franchise values are heavily dependent on the brand. According to Kerrigan Advisors Blue Sky Report current manufacturer franchise relative values are in three summary groups —

• High – Porsche, Lexus, Mercedes, BMW, Audi, Land Rover/ Jaguar, Honda, Toyota and Subaru
• Average – Chevrolet, Ford, Chrysler/Jeep/Dodge, Buick/GMC, Infiniti Acura Cadillac Volvo, Hyundai, Kia
• Low – Mazda, Volkswagen

What dealership business buyers generally demand for a specific manufacturer’s franchise is based on the manufacturer’s brand strength, franchise availability, expected new vehicle sales per franchise, the franchise’s typical dealership profitability and the manufacturer’s financial position and sales outlook.

The Dealership’s Specific Franchise Considerations

A franchise’s fit with its local market impacts its value. The higher the franchise suitability with the local demographic the higher the franchise value. Markets with more competition from like-franchises will have lower franchise values.

The condition of dealership facilities often impacts a franchise’s value. Is the dealership’s facility factory compliant or, will the manufacturer soon require costly significant upgrades? Buyers tend to reduce a franchise’s value by some proportion of expected real estate compliance remedy costs.

The Dealership’s Historical “Normalized” or “Adjusted” Profitability

The dealership’s historical profitability level impacts the Blue Sky amount. Profit levels already achieved impact the Blue Sky value more than the opportunity to improve future profit levels.

A dealership’s Blue Sky value is driven by what appraisers call “normalized” or “adjusted” dealership profits. We adjust historical and forecast profits to consider the financial impacts of above/below market-rate compensation and facility rent, extraordinary/unusual income or expense, owner overrides and packs, dealership originated affiliate entity income/loss (reinsurance entities, management companies, body shops, etc.).

We also consider the impact of outstanding commitments on future profitability such customer retention program benefits (car washes, vehicle maintenance, etc.)

The Dealership’s Potential for Profitability Growth

All other factors being equal, two dealerships with identical historical profitability levels and the same franchise will have substantially different values if their profitability growth expectation is substantially different. Is the dealership’s market area growing? Is there growth available in the market areas’ current manufacturer determined planning potential?

Is the dealership currently underperforming in pre-owned vehicles, service and parts or in the finance and insurance department? How likely is it that the current owner will achieve these operational enhancement opportunities and when? And, how likely is it the current owner will sell the dealership and when?

The Dealership’s Likely Buyers and Resulting Possible Valuation Premium

The number of dealership business potential buyers impacts a business’s value.  Like in most industries, the more possible buyers the higher the resulting price. Generally, in the dealership industry, dealerships are highly marketable due to the high number of interested buyers. When this condition exists, successful buyers usually determine their offer prices based on what they expect to achieve for operational profit performance versus the current management’s profit performance.

The result is ample available buyers will cause the sale of the dealership business at a premium price over and above what the dealership is worth currently to the seller. On the flip side, if there is only one likely buyer, why would such buyer pay the willing seller any more than what the dealership is worth to the seller?

Having a competent appraisal prepared by an experienced appraiser is essential for any dealer or dealer group. Many dealers have appraisals prepared on a periodic basis as a matter course to supplement business planning and/or performance monitoring.

Kirk Kleckner is eminently qualified to prepare an accurate valuation of a dealership businesses and has been doing so for many years. As a CPA, MBA and former CFO of a $500 million-dollar dealership group, Mr. Kleckner understands the financial and operational aspects of the automotive dealership business that are critical in assessing business value, planning, prospects, risks, and opportunities.

Call Kirk at 612-294-8730 or go to KirkKleckner.com

Assessing the Value of a Class Action Settlement

The Economic Approach to Determining Reasonable Amounts

In many lawsuits, the amount for damages in a settlement are agreed upon between the two parties and paid according to the agreement. The court does not necessarily have to approve the amount or arrangements.

In a class-action suit, however, the court must approve the settlement because most members of the class are unavailable to participate in the action. The court acts on their behalf to make sure the amount and arrangements are fair to all parties, that counsel for the class did their job properly. How is this accomplished?

Attorneys for the class and for the defendant will argue for higher, and lower settlements, but the court’s responsibility is to have enough evidence and research to approve a “reasonable” settlement and will often look to  experts for guidance.

Because so many class-action lawsuits involve products related to safety, the automotive industry is commonly involved in them, and locating an expert who has the industry knowledge and financial expertise is crucial for many cases.

Some of the most famous auto-related class action settlements have been:

The Chevrolet Corvair case involving rear suspension and steering column safety defects, the Toyota unintended acceleration case, the Volkswagen emissions  case, General Motors and “switchgate”, and possibly the most notorious was the Ford Pinto gas tank case.

Recently for some car manufacturers the Takata airbag settlement was finalized and several experts participated in the process to assist the court in reviewing the amount and arrangements, including Mr. Kirk Kleckner.

Mr. Kleckner has the experience in both damages valuation and the automotive industry to participate effectively as an expert witness and has been qualified by courts to do so on many occasions including the above-mentioned Toyota unintended acceleration case. His experience, effectiveness  and credentials as well as a CFO of a $500 million dealership group position him as the ideal individual to value class-action settlements.

Please reach out to Mr. Kirk Kleckner if you are involved in a situation where a class-action suit is involved by calling 612-294-8730 and his office can arrange a confidential consultation at your convenience.

How Will the New Tax Law Affect Your Automobile Dealership?

Everyone is scrambling to see how the new tax law will impact their personal financial lives and businesses, large and small, are doing the same thing. So far it seems that the new law will benefit businesses, and auto dealership owners in particular are going to be pleased.

1. I believe the economic growth from the tax bill will positively impact dealership businesses value overtime!
2. The estate changes will further reduce dealer gift and estate taxes with effective planning.

The tax reform bill will lower taxes on many businesses, as promised. Your accountant or tax attorney may offer advice on what the changes will mean to your particular situation.
Interestingly an unintended consequence of the Tax Bill’s original form would have meant higher taxes for most  dealers. That’s because the bill imposed new limits on the interest payments businesses can write off, capping any deduction at 30% of a company’s income.

Automobile Dealer Tax Law

Dealers pay a lot more in interest than many other businesses because they use floor plan debt  to finance vehicle inventory purchases.  Fortunately dealers won a change in the bill that makes these auto dealer loans exempt from the bill’s new interest deduction cap. The final details of the law are still being interpreted because the ink is barely dry.

Kirk Kleckner is a seasoned dealership expert that is also a CPA, MBA and accredited in business valuation Because auto dealerships are so different in their financial and operational structure than most other businesses, it would be prudent to reach out and contact us if you have any concerns or needs relating to our dealership services in the areas of profitability enhancement, business valuation, succession planning and litigation financial analysis and expert opinions.

Call Kirk Kleckner at 612-294-8730 to set up a confidential consultation.