The auto industry has experienced unprecedented change over the last several years.
As an owner, your business is not just your livelihood—it’s your legacy. The 5-4-3-2-1 framework offers a clear path to maximize your business’s value and prepare for a successful transition, whether you plan to sell, pass it down, or divest a specific dealership.
5 Stages of Value Maturity
- Identify: For many owners, 80-90% of their personal net worth is tied to the business. To unlock its full value, start with a professional valuation. This process highlights hidden opportunities, such as operational improvement opportunities in a single store or a market analysis of your full portfolio.
- Protect: Every dealership faces risks, from fluctuating interest rates and inventory to expensive image upgrades. Protect your business by actively managing your expenses and using technology to maximize efficiency. Safeguarding your operations against risks like the “5Ds”—Death, Disability, Divorce, Distress, and Disagreement—is critical to preserving value.
- Build: Once risks are managed, focus on building value. This means increasing profitability (EBITDA) and improving your market position. For example, improving your digital shopping experience or enhancing your service capabilities can improve your margins and customer satisfaction.
- Harvest: When the time comes to transition, ensure you’re prepared to harvest the fruits of your labor. Whether selling to a third party, transferring ownership within your family, or divesting a specific store, explore all options to maximize your financial gain.
- Manage: Value doesn’t manage itself—it requires ongoing attention. In the auto industry, staying ahead means continuously training employees, adopting new technologies, and optimizing customer satisfaction metrics.
4 Intangible Capitals That Drive Value in the Auto Industry
- Human Capital: Your team is your greatest asset. Skilled technicians, sales staff, and managers keep your business running smoothly. Invest in training programs, and provide clear career paths and incentives to retain top talent, reducing costly turnover.
- Social Capital: Your brand and company culture define how customers and employees see you. A dealership with a reputation for investing in the local community builds trust and loyalty. Creating a strong company culture can also attract top-tier talent who align with your values.
- Customer Capital: Without customers, there is no business. Build deep, lasting relationships by focusing on “entanglement.” For instance, offering unique services like dropping off a newly purchased car can make your business indispensable to customers. Evaluate your business through their eyes—what keeps them coming back?
- Structural Capital: Strong processes, tools, and systems are the backbone of your business. For example, a CRM system that tracks customer history can improve the sales and service experience. Document processes to ensure they’re transferable to the next owner, making your business more attractive to buyers.
3 Gaps and 3 Legs of the Stool
As you prepare your exit, address the three gaps that affect your business’s value:
- Profit Gap: Is your business achieving the profitability it could? Compare your financial statement to best-in-class ratios of similar dealerships and identify areas for improvement.
- Value Gap: What is the gap between your current valuation and the potential value if your business is operated optimally?
- Wealth Gap: How much do you need to live the life you envision post-exit?
Balance the three legs of the stool—business, financial, and personal needs. For instance, a dealership owner might focus on ensuring the company and employees can thrive post-exit while achieving personal financial security and a clear sense of purpose for the next chapter.
2 Concurrent Paths: Business and Personal Planning
Exit planning is not just about your business; it’s about your life. These two paths must run parallel:
- Business Path: For auto dealers, this means ensuring your operations can thrive without you. Train successors, document workflows, and implement systems that allow the business to run independently.
- Personal Path: Many auto dealers struggle to imagine life after their exit. Define your next act—whether it’s consulting, mentoring others in the industry, or simply enjoying a well-earned retirement. Without this clarity, even a successful business exit can feel unfulfilling.
1 Goal: A Significant Business
The ultimate goal is to create a business that is valuable, attractive, and transferrable at any moment. Your aim is not just to exit, but to build a business that thrives long after you leave.
Conclusion
The road to a successful exit is not a quick trip—it’s a journey that requires planning, strategy, and a clear vision. By following the 5-4-3-2-1 framework, you can align your business and personal goals, ensuring you optimize your life’s work for you, your family, and the people and causes you care about.
Twelve Points Business Advisors is proud to announce that we have joined the Massachusetts State Automobile Dealers Association. Following the addition of Taylor Duffy to the Twelve Points team, who brings real world experience of having run car dealerships, this was a logical step as we look to bring our broad business coaching expertise to the automotive space. An insightful article written by our very own Dave Clayman will be featured in the official monthly publication of Massachusetts Auto Dealer every month. Jump to page 28 to view his insight in the December edition.