Planning a Dealership Succession: What to Plan For
planning notes, part one. Not a story about a particular store. Just the list I would want in front of me if I owned a franchised dealership and had started thinking seriously about a dealership exit strategy.
The short version: succession is not one decision, it is a chain of them, and most of them take longer than owners expect. If you want a structured overview of the options, the dealership exit planning page from MD Johnson walks through how the firm approaches it. Below are my own working notes.
first question for any dealership exit strategy: who is next?
There are really only a few paths:
- pass the store to a family member
- sell to a key manager or partner
- sell to an outside buyer or dealer group
- some mix, like a partial sale now and the rest later
Each one is a different dealership exit strategy with different paperwork, timing and tax results. Picking the path early shapes everything after it.
the factory has a vote
This is the part people forget. In a franchised store, the manufacturer must approve the new owner or operator. That is true for an outside buyer, and it can be true for a son or daughter too. OEMs look at experience, capital and plans. A successor who has never run a store may need a training path before approval is realistic.
note to self: ask the OEM rep, early and quietly, what they would want to see.
the people who make the store run
- general manager
- service and parts directors (fixed ops is often the steady earner)
- office manager / controller
- top sales managers
If any of them leave mid-transition, value and buyer confidence drop. A succession plan should include how to keep them, and when to tell them. Confidentiality matters here. Telling everyone too early can cause the very departures you fear.
the numbers, cleaned up
Whatever the path, someone will value the store. Even a family transfer usually needs a defensible number for tax and estate reasons. Things to get ready:
buy-sell advisor for dealers- at least three years of financial statements
- a list of non-recurring and owner-specific expenses
- real estate value vs current rent expense
- notes on facility and image requirements coming up
Blue sky, the goodwill above tangible assets, is the piece that swings the most. Brand, market and quality of earnings all play into it.
the real estate question
Many owners hold the property separately from the operating company. Keep it and lease it to the successor? Sell it with the store? Each choice changes income, risk and the shape of the deal. MD Johnson notes that its subsidiary MDJ Realty handles the real estate part of a buy-sell at no additional cost, which is one way to keep both pieces moving together.
tax and legal, briefly
Asset sale vs stock sale, gifting vs selling to family, installment terms, estate planning. All of these have tax consequences. The IRS has a plain overview of how a sale of a business is treated, which is a good primer before the meeting with your CPA.
Not tax or legal advice. Talk to your own CPA and attorney.
timeline, roughly
- decide the path and the goal (years out, ideally)
- clean the books and settle the real estate plan
- prepare the successor or quietly test the market
- work through LOI, purchase agreement and diligence
- OEM approval
- closing
last note
The best plan is the one you start before you need it. A forced sale, after a health event or a falling-out, rarely gets the best terms. Planning ahead does not lock you in. It just gives you options.
A dealership exit strategy written down, even roughly, is better than one held only in your head. more notes soon. if you are a dealer working through this, the first useful step is simply writing your own version of this list.