Editor's Note: Here’s an excerpt from Succession Planning: Step-by-Step. Go here to read more. 

A sound dealership succession plan addresses a long list of issues, including retirement income, transferring wealth to the dealer’s heirs, transferring ownership, dealing with the income and estate tax consequences associated with an ownership transfer, and addressing other issues key to the ongoing success of the business; not the least of which (and often forgotten) is transitioning management.

Step 1: Identify and prioritize goals for the transition.

Step 2: Identify and prepare new management. 

Step 3: Determine retirement cash needs

Step 4: Review options for funding the transfer

Step 5: Planning for Ownership Succession

Step 6: Identifying Options for Transferring Ownership

Once a successor is identified, the retiring dealer’s cash needs are determined and funding sources are located, we can consider various strategies for transferring ownership, including gifting, selling or redeeming the owner’s interest, selling business assets, tax-free exchanges and others. The transfer option must accommodate:

  • The owner’s needs for assets from the business
  • The owner’s willingness to incur taxes on the transfer
  • The successor’s desire to be insulated from the business’ existing liabilities
  • The successor’s desire to reduce future income taxes on the business 
  • The amount of cost and complexity the parties are willing to incur

Factors such as funding and the type of business entity can affect the outcome of a transaction.

10 Steps to Successful Succession Planning

  1. Identify and prioritize your goals.
  2. Identify and prepare your management successor.
  3. Determine your retirement cash needs.
  4. Review options for funding the transfer in light of required retirement funds.
  5. Plan for ownership succession.
  6. Identify options for transferring ownership.
  7. Integrate succession and estate plans.
  8. Develop an implementation strategy.
  9. Design a contingency plan.
  10. Monitor and adjust the plan.