Article

Business Survival After Retirement Or Death

June 2007, Auto Dealer Today - WebXclusive

by David Keller, CPA, CFE - Also by this author

Our clients frequently ask, “Will my children be able to operate and maintain the business I have built and survive the bad times when I’m no longer around?”

This question is not the easiest to answer.  Sure, projections can be run to see if there will be enough cash flow and profits to continue the business operations; however, cash flow by itself is not enough for a business to survive.  Businesses also require adequate financing.  Additionally, those that will be running your dealership after you retire or die need common sense, business sense and a solid work ethic.

Adequate Financing 

Adequate financing is critical.  Without financing of some type, either by a bank, friends, family, outside investors or by you personally, most businesses would struggle.  To obtain financing, you must be able to present your business and personal financial information in some orderly fashion.  This means you must be aware of your financial condition at all times and be able to react in advance when you need initial or additional financing.

Cash Flow

Your business must have cash flow to survive. Without cash flow, a dealership can quickly collapse.   Just as important is the ability to manage cash flow.  Managing cash flow is a skill that can be difficult for someone who does not understand the ebb and flow of the dealership income and expenses.  The inability to pay bills, payroll, taxes and loans as they become due not only causes you needless worry, but it will impact your dealership’s reputation in your own community.  If you have trouble paying your vendors, most will wait for their money for a short period of time, but they cannot afford to finance your business forever. If you find yourself struggling in this area, hire someone who has experience. It will be worth the cost.

Common Sense

You can be the smartest person in the world, but also the most clueless when it comes to dealing with daily operations and the decisions that come with them.  Common sense is the ability to make sound and prudent decisions based on a simple perception of a situation or facts. Yes, a good education is important, but common sense will often compensate for the lack of a formal education. We have clients who have owned and operated very successful businesses for many years, who did not attend college and some who never attended or completed high school.  During the 1940s and 50s, many people had to work instead of attending school to help support their families.  I know firsthand because my father’s education ended after grade school, yet he had a lot of common sense and always seemed to know what to do next.  Common sense allowed him to make many decisions on a daily basis that led to him building a successful used car dealership, and later a new car dealership.

Business Sense

You must also employ good business sense in your day-to-day operations and planning for the future.  Again, an advanced business education may help you understand business situations quicker, but understanding and acting upon knowledge are two different things.  Business sense is knowing how to take advantage of miscues by your competitors without being dishonest or deceitful in your business practices.  You must be able to react quickly whenever business conditions change for the worst, which also means having contingency plans in place for the many different situations that could arise.

The best way to evaluate your business is to study the history of your industry.  Learn why some businesses have failed when others have succeeded, then think through how you would have reacted in similar situations.  Would you have made the same decisions as those who failed or those who survived? In retrospect, it’s not uncommon to believe that you would have made the right decision, but bad decisions are easy to make. Even very successful businesses stumble from time to time due to a disaster of some kind or the loss of focus, ambition, initiative or key employees.  What sets the survivors apart is the will to survive and the business sense to know when and how to react.

Solid Work Ethic

Most of the time, a business with an absentee owner will not survive.  The failure rate is high for businesses whose managers and owners do not put forth the effort necessary to make the business work.  Initiative and ambition are key traits of a strong work ethic. That is not to say that an owner has to be there 24/7 for the business to survive; it can survive with very good managers. However, without a good navigator, most planes, trains and ships would never reach their destination.  You can have the best ship in the fleet, but if you don’t know where you are going and there’s no one to steer the ship, auto pilot will work for only a short time.  Someone needs to direct the day-to-day operations of every business to avoid major problems.

Dealer’s Children

Being related to the owner doesn’t improve your odds of success unless you also have a adequate financing, cash flow, both common and business sense, and good solid work ethic.  Good managers and employees who care about the business as much as you do will certainly improve your odds for success, too.  However, success is never guaranteed simply because you’re related to the owner.

You need to get focused and get excited about the business you’ve grown up in.  Let your parents or other relatives know that you do care and want the business to succeed. Many businesses have survived, grown and even prospered more than when in the hands of the prior generation due to the increased education, strong work ethic and business sense of the dealer’s children. It is best to have thought through what you want out of life before you have these open discussions.  Don’t hold up this major decision until it is too late for your family business to find a successor or train a replacement who will watch and manage the business successfully.

Dealers

A note to dealers: If you took over the business from your parents or relatives, remember how you felt when you thought you had a better idea of how to run the business than they did.  It wasn’t easy for them to give up their leadership role.  They started and grew their business with hard work and long hours.  Take that to heart and remember all the times you stumbled trying to learn the business over the years.  There were many times you may have not made the best decision, but were able to overcome the errors and keep going.  Know your children will probably have the same experiences.  Coach them and lead them, but don’t demoralize and destroy their initiative and desire to continue the family business.

Vol 4, Issue 4 

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