You-Proofing Your Business
Updated: Jan 24, 2020
Don't Build Your Firm Around One Person
By Jim Kahrs
You Proofing Your Dealership
Most first-generation dealership principals came to be business owners after being either a successful sales person or technician. In almost all cases the business started out small and built momentum over time. Very often the start was in a garage, an office in the house or a small office. The business built with the owner(s) as the center of everything. One problem that some dealership owners face is the fact that they have remained the center point of the business as it grew.
This can impact the business in many ways. First and foremost, a business that is built totally around one person can only grow to a certain point and then it stagnates.This point will vary based on the skillset of the owner. I’ve seen many dealerships under this structure top out in the $2 million to $3 million revenue area while others have been able to push it as high as $5 million. Yet a ceiling remains in place as there are only so many hours in a day and just so much one person can do before the clock runs out for the day.
Another major impact from this is an inability to create and implement a succession plan and/or exit strategy. No matter who you are there will be a need for a succession plan at some point in the future. When the business is built around one person this process becomes much more difficult. The business cannot be passed on to family members or key employees unless there is an heir to the “throne” that has the ability to do what you do on a daily basis. This is one of the biggest stumbling blocks dealership owners run into when planning an exit. As a result the options are limited. Too often the only option is to sell the business to someone else in your area that will dismantle much of the infrastructure and tuck the sales and service operations into their business.
The way to have plenty of options and to operate from a position of strength is to “you proof” your business. By this I mean reduce the reliance that the business has on you as the owner and the most important cog in the machine. The benefits of doing so are many; you’ll be able to spend time away from the business without it collapsing, you’ll have happier, more empowered employees, you’ll build significantly more value into the business and you’ll open the door to all options when creating your succession plan and exit strategy. Who knows, you might even increase the revenue and net profit substantially. So how do you you proof your dealership? It starts with identifying the areas that you hold the keys to and moving responsibility to others. Let’s look at a few of these areas.
As mentioned earlier, most first-generation dealership owners have come up through the industry as successful sales people. They started their business as a sales person and have been the focal point of the sales department ever since. Start by asking yourself this question; what would happen if I wasn’t in sales? Would the company collapse? Would it take a big step backward? If the answer is yes, you need to look at bringing others up to your level. If you’re holding on to most of the big accounts you need to bring other reps into these accounts. The initial objection to this tends to be twofold. First there is the fear that no one else can handle the accounts and get the same level of sales you do from them. This is answered by training and monitoring. Don’t drop the accounts entirely; stay involved as you transition other reps to handle them.
The second objection is that you now have to pay someone commission on business you weren’t previously paying commission on. These “house” accounts didn’t have sales commission tied to them. This is a dangerous one; in effect you’re working the account for free. Any job you do in the business without being paid for it is a trap. You will be trapped doing this forever as the business “can’t afford” to pay someone else to do it. If you handle accounts on your own I suggest you pay yourself commission as a sales rep. This will force the business to cover the true sales expense while still driving toward an appropriate bottom line profit. If you don’t pay any commission on some of your sales then the company net income target needs to be higher to make up for this.
Are your people constantly coming to you with problems and issues and looking for you to provide solutions? This is probably the biggest time eater you face. A major step in you proofing your business is getting the people around you to start making their own decisions. This doesn’t mean that you have to completely let go of the reins but you do need to start pushing back and challenging your managers to come up with their own solutions. If you really look at this you might be surprised how often others look to you to make decisions they are perfectly capable of making on their own. You’ll also realize how many hours of your time are chewed up handling these “problems.” Yes, you are likely the best problem solver in the business, that’s why you’re a business owner, but that doesn’t mean you can’t train others. You’ll be amazed how much time you can get back as those around you begin taking full responsibility for their area. You’ll also be surprised how well many of them will handle things when trained properly and trusted to make decisions themselves.
Financial Review and Management
Too many dealership owners bear the burden of managing the financial results of the business on their own. The first thing to understand is that the financials are the score card of your business. You have a team of people playing this game of business with you. Imagine the results a professional sports team would have if the team had no idea what the score was? By knowing the score the team has the ability to adjust the game plan and their sense of urgency to win the game. If you don’t share the financial results - your score card - your team is in the dark. You don’t get the benefit of them adjusting their behaviors based on the situation. There are many ways you can share the financial score card of the business. Some dealership owners have a full open book policy where all employees see all financials. Others will share certain information like overall revenue and departmental profitability. There is no right or wrong answer to what level of detail you share. I suggest sharing what you think will help the team see the picture and adjust their behavior to achieve the goal. The key is to share the information often and get everyone sharing in the responsibility of achieving the team’s financial goals.
This is another area dealership owners tend to hold onto too tightly. The success of every organization is closely tied to the people that make up the ranks. It is important for the front line managers to learn how to successfully recruit good talent. As the owner of the business you need to provide the training, direction and incentives required for your managers. One way to do this is to require that each manager conduct a minimum number of interviews each week or month. In sales where turnover is greater I would suggest one per week. In service and admin you could go with one per month. By requiring this you create an environment where the mangers have to constantly look for talented people and will build a pool from which to pull. They will also get better at locating and identifying the truly talented people. You proofing your dealership will definitely hinge on the ability of you and your managers to recruit strong team members.
The final area I’ll cover here is future planning. As the business owner you have been the one providing the direction for the business. What products should we sell? On what geographic markets should we focus? Should we consider acquisitions? These are all great questions that are rarely contemplated by the team. One way to bring them into the conversation is to do an annual SWOT analysis. This is a process where you bring in your managers and key employees to brainstorm how to plan for the future. You look at and discuss the strengths, weaknesses, opportunities and threats of your dealership. In doing so you come up with plans to correct the weaknesses and minimize the threats while building on the strengths and capitalizing on the opportunities. The team now increases their overall responsibility for determining the future of the company. When done correctly they now share ownership for the future direction.
The above items represent just a handful of areas you can look at when trying to you proof your dealership. They’ll provide a great starting point. If you embrace the process you’ll find that this starting point will lead to a dramatic shift in the responsibility level of all of your team members. They will slowly understand that they are not simply there to wait for you to give out orders and provide direction. They can and should be active participants sharing the responsibility. When they fully embrace this anything is possible. You now have a pool of talented people to draw from when looking for a successor and you’ll have a more stable and profitable business. This will open all of your options for moving forward. Holding on to everything yourself typically leads to only one exit option; sell the business for less than it is truly worth to someone who will dismantle it to pull out as much profit as possible. With time on your side the choice is yours.
Jim Kahrs is the president and founder of Prosperity Plus Management Consulting, Inc. He may be reached at 631-382-7762 or at firstname.lastname@example.org