different than business sales, and both should be valued and sold separately; that is in the best interests of the seller, to be sure.
The Family Dynamic
For those keeping the business in the family, the key question would be how to accomplish that transaction fairly. There are also tax issues to consider, and the owner and family needs to discuss and agree how and when the dealer needs to step away.
The key is to sit down and talk with your family and professionals to map out what solution works best in your situation, said Mike Henning, a family business consultant and national speaker.
There are several ways to pass a business along to a family successor, including gifting, sale of stocks or assets, stock bonuses, various trusts and more, according to Henning.
Deciding which method to use depends on the desired outcome and to whom the company is being passed. Gifting might not be a viable option if you want the new owner to have “skin in the game,” but such an option avoids estate depreciation and has certain tax benefits for both parties, Henning said.
It you’re looking to avoid a lot of taxes, the law has put tools in place for businesses and families to use. To understand these ‘tools,’ you might have to pay a professional a little bit more for help, but its worth it, Henning said.
“Maybe you can get by and transfer your company with zero taxes, or maybe its 1% or 2% if you use the tools and have good advisors,” he said. “If you don’t take advantage of the tools, whose fault is it? Your own.”
When transitioning to a successor, whether its one or many, Henning said it is key for the current owner to set a date at which time they’ll turn over all responsibilities to the new generation.
Then the current owner must decide what ‘baton’ they’re passing. “You need to write down all your responsibilities so you know which to pass on to the next generation,” he said.
Henning suggests using the “crooked line method.”
“The idea with the crooked line is to have four years to transfer responsibilities from dad or mom, the owner of the company, to the kid, the potential successor,” he said.
The way the crooked line method works is by dividing up the responsibilities between the current owner and successor. Gradually each year responsibilities are transferred from the owner’s side to the successor until the new owner is performing all the current owner’s tasks (see accompanying infographic). Henning recommends transferring at least four to six responsibilities a year.
Henning encourages businesses with multiple family successors to draw up partnership rules or shareholder agreements. There are several ways to set up partnerships; 50/50 split, ‘first among equals,’ ‘team of equals’ and unequal ownership.
Partners should come to an agreement about methods of compensation, as well as develop a participation agreement of who works in the business and who can own stock. Additionally, they need to discuss and write out an exit plan if someone wants to sell their shares, Henning said.
When it comes to disagreements partners should establish a tiebreaker arrangement. They should also deal with problems privately away from employees and avoid bringing complaints home, there for involving spouses and more family members, he said.
After the Sale
After your retire or sell your business, you could still work for the dealership in a consulting capacity for several months. Gaither said it’s not uncommon for a former owner to be asked to stay on for 3 to 6 months or even a year after a business is sold as part of the deal.
Dawes, who still works consulting at his old shop, jokingly says he’s learned to use some new words – suggest and recommend – as his role at the shop has changed.
It can be hard to let go, but your emotional attachment to the store must change, he said.
Dawes also noted change will occur in the home. The business was his hobby, now he has to find new outlets, Dawes said. On the positive side you will have more time and may be able to give back to the community that’s supported you over the years.
“It’s no less challenging and exciting then when you began your business journey. Its just different,” Dawes said.
Tire Pros plans to host other succession planning workshops in the future, as well as a workshop for those ‘new’ tire dealers who’ve taken over from mom and dad, Brown said.
