Why Succession Plans Really Matter
Updated: Apr 5, 2021
The world changed in March 2020. Prior to the onset of the COVID pandemic succession planning was already a hot topic for many business owners. The pandemic has moved up the timetable for quite a few business owners. It has also exposed where there has been a lack of planning and/or execution in planning for succession.
With the hustle and bustle that you face every day in normal times it can be hard to set aside time for future planning. If you’re like many other dealership owners, the few hours that you can set aside are usually commandeered by the problem of the day. Rarely does the thought of planning your succession come to mind. Unfortunately, this has really come back to haunt some dealerships.
According to Webster’s Dictionary, succession is the act of succeeding or coming after another in order or sequence or to an office, estate, throne, etc. It might be of interest to know that the word success was defined originally as simply the outcome of something, either good or bad. Over time this definition has changed to mean a positive outcome only. So, while succession is the “act” of replacing someone in the business, the actual replacement can and has been done with varying level of “success”. The goal of this article is to provide some insight into why succession planning is so important and to outline a plan that you can follow to create a succession plan that will provide a positive outcome.
Let’s start with why succession planning is needed. The most obvious reason for having a succession plan is to provide for a dealership owner’s transition into retirement. Because of this, many people have a tendency to confuse succession planning with exit strategy planning. However, there are other reasons for succession plans in a dealership. What if something were to happen to the dealership owner or one of the key managers or employees? Unfortunately, I’ve seen situations where someone becomes ill or passes away unexpectedly leaving the dealership vulnerable. These unplanned events wreak havoc on a business. With no plan in place those left behind are left scrambling to come up with a plan. In many cases this plan has simply been to sell the dealership for pennies on the dollar.
Now let’s take this down a level in the organization. What happens if one of your key managers is the one leaving unexpectedly? If you haven’t outlined a plan for replacing them and haven’t started the process of training someone, you’ll be starting from square one and the business will inevitably suffer. So, you can see that planning for the future replacement of all key employees is something that deserves a little attention.
This all said how can you be prepared for an uncertain future? First let’s look at the two scenarios that one may face. They are a planned versus an unplanned succession. In a planned succession you’re calling the shots and replacing someone proactively. You typically have time to plan and handle the things that need to be done to ensure a smooth transition. Since the person is still there functioning in their role the worst case here is it takes longer than expected for the exit. When facing an unplanned replacement there tends to be a lot of confusion and turmoil. In most cases there are issues that go beyond the business that have to be dealt with and these usually do come first. For example, if a key person in the dealership becomes ill the focus is on helping them get better and managing the dealership can be ignored during these times. The worst-case scenario for the business here can be catastrophic. The morale of the story is plan for the unexpected and be ready.
When looking at your dealership it is important to determine which positions required a strong succession plan. They are typically the senior management positions like President, Director of Admin, CFO, VP of Service or Service Manager, VP of Sales or Sales Manager, etc. Once you’ve determined the need for a plan there are some things you can do early in the process. First, make sure that you have a good write up of what each of these managers does. We refer to this as a hat write up and it contains things like the purpose of the post, the products or expected outcomes from the post, the key statistics or performance measures of the post and the duties and responsibilities of the post.
This can and should be followed up with detailed procedure documents outlining exactly how each of the key duties is done. Ideally, these should be in place for all positions in the dealership regardless of the need for a succession plan but here’s a good measuring rod.
Look at your job and the jobs of your key people and try to imagine what would happen if you or these key people weren’t there. Which areas would cause the biggest problems or leave the biggest holes? These are the areas to concentrate on right away. Get them written up as soon as you can.
Now that the hats have been written up it’s time to create a succession planning chart. This is a chart that lists the key people in the business and identifies potential successors. We usually look at each position and determine three different levels of preparedness. First, we have a successor named and already on board, with the company and this person is fully trained and ready to take over the position. This is a great place to be. The second level is where we have a successor on board but they need 1 – 3 years of training and experience to be ready. The third level is that we have not identified a successor. This needs to be determined for each of the key posts. Just doing this exercise alone can be quite an eye opener. It’s not uncommon to go through this and realize that you don’t have any successors on board for yourself or your key managers. The good news is that now you can start building a plan.
One element in succession planning that is often overlooked is the need for oversight. The business is most vulnerable in the event of an unplanned succession. If the owner or leader of the company is unable to work, the team can be left without the leadership needed to succeed. It is a good practice to name a Board of Directors for the dealership that would be able to help guide the business in case of an emergency. This board can consist of trusted colleagues or business advisors that can help the managers navigate a transition. Members of this board could include your business consultant, accountant, banker, owners of other dealerships, other local business owners, etc. The idea is for them to provide guidance and direction and to help with making key decisions and finding a replacement for previous owners or managers who are no longer there.
As mentioned earlier, there are two types of succession that can occur, a planned succession and an unplanned succession. When the transition is planned in advanced the process can and should be a much smoother one. Using the succession chart above a replacement should be identified and trained for the post. When taking over as the senior most manager in a company your successor must understand what makes the business tick. He or she needs to understand all aspects of the business from sales and service to admin, cash flow and financials. If your successor doesn’t have the ability to step into your entire role then he or she is not ready.
An unplanned replacement is another story entirely. A sudden need for replacement is usually due to a catastrophic event. In this case a plan needs to be worked out in advance that outlines the steps required to safeguard the company and keep things on track. It works well to list out the major actions that will need to take place in the first 24 hours, the first week, the first month, etc. For example, in the first 24 hours a meeting of the board must be convened to assess the situation and determine a course of action, a message must be prepared and delivered to the employees and possibly the customers and a temporary successor must be named. In the first week the board and the temporary successor must work to plan a permanent replacement. Planning this process out in advance can mean the difference between making it through this event and having the company go under. At the very least it ensures the smoothest transition possible.
The most important asset you have is time. A good succession plan can be drafted while time is on your side and far in advance of it ever being needed. Though the odds of facing an unplanned need for succession are very slim it is worth being prepared for it. As a side benefit, it has been established that dealerships that invest the time and effort in creating succession plans are more successful than those that do not. Just by putting your attention on the future you inevitably find yourself drafting other business plans that help you build a stronger more successful business. So, don’t wait, get your plan going today. You’ll be glad you did.
Jim Kahrs may be reached at firstname.lastname@example.org or by calling 631.382.7762. You may also view a webinar on this topic at your convenience.