Nancy Phillips Associates

Strategic Planning Insights and Asset Valuation: Best Practices for Dealer Principals

06.05.23 12:00 PM By Carrie Forbes

Surprisingly, many auto dealer principals have no formalized succession plan or exit strategy.  This highly preventable situation leaves families vulnerable to financial loss, confusion and needless stress that results from crisis-planning in the absence of a current, proactively-maintained plan.


Our team at Nancy Phillips Associates has witnessed this unfortunate situation firsthand many times in our three decades of serving as a trusted advisor to dealers throughout their ownership lifecycle, and assisting buyers and sellers of franchised auto dealerships. From this experience, we share the proven best-practices below to inform and empower you to act now in order to reap a secure future and the peace of mind you’ll gain from proper planning and knowing your dealership’s value.


Create & Maintain a Formal Plan

A formal plan ensures that your specific intentions are expressly understood and expeditiously fulfilled; not left to a court or franchisor to decide. For example, if you die unexpectedly, your outdated estate plan or lack of succession agreement can place the ownership of your dealership at stake. Triggers that necessitate a formal plan include death, serious health issues, divorce, family issues, partnership disintegration or departure of key personnel. Other reasons to plan: Tax deferral, family or partnership buy in/buy out, estate planning, annual gifting and more.  A current evaluation of your dealership’s worth is the foundation of this plan.


Know the Current Value of Your Dealership and Its Assets

Business value is a core metric of every plan and transition for your dealership. It’s vital to understand and track the value of your business as it evolves with the economy, personnel and market factors.


Plan Early | Update Annually | Maintain Current Valuation Records

Hire an experienced estate attorney to write a plan that addresses your current concerns. Revisit your plan annually, or sooner based on changes, and maintain current documents that support your plan. Key documents include regularly updated business evaluations and dealership real estate appraisals.


Prevent Partnership Pitfalls

Partnerships can be rewarding but without formal planning they can be fraught with issues, problems and discord.  These steps are essential to help minimize potential partnership difficulties: Obtain a professional evaluation of your dealership’s worth at the start of your partnership; Create buy in/buy out agreements that rely upon periodic dealership evaluations; and communicate consistently.


Consider Family Members

When family members serve as partners or are being groomed for succession, it’s critical to establish a benchmark value of your business and adjust it periodically, to avoid the adverse effects of misunderstandings, incorrect transfer of shares, flawed pricing, and family dissension.


Ensure Inheritance Fairness

Dealers often separate their assets with the intention of being fair to their beneficiaries but market fluctuations can turn a good plan upside down. Business values and real estate values can become radically disproportionate from the inception of an estate plan to its execution. Dealership and real estate values, as well as plans to right-side unexpected impacts, should be part of any estate plan.


Maximize Tax Advantages

Wise dealers take advantage of favorable tax laws that may benefit their long-term plan. This may mean incremental transfer of ownership to partners or family members or establishing revocable trusts. Regular evaluation and documentation of dealership and real estate values is typically part of such long-term planning.

Contact us today for Professional Evaluation Services or a Confidential Discussion

Carrie Forbes