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.