Start Now to Exit Later

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Begin your business with the end in mind

One of the most successful dealers I've ever known executed his exit plan the right way. From the start, he formed a corporate structure that could be easily transferred either to family (if they were interested), to one of his managers, or to an outside party. Or it could be transferred to a combination of the three.

He remained a dealer for about 20 years, building his business in a diligent, methodical manner, meeting the OEMs' requirements, and relocating, expanding and modernizing his facility along the way. He trained his teams and maximized each department's profits according to the recommendations from his 20 Group.

About three years before he planned on retiring, he started golfing a little more and being around the dealership a little less. He wanted to determine whether the management team he had hired and trained could manage the store without him around every day. And if one of the managers wanted to buy the business, he could ascertain that it was a viable alternative; if not, he wanted to assure that his dealership was turnkey to an outside buyer.

The right facility and management team, and good relations with the OEMs and the community would garner this dealer the highest possible return on his years of financial and personal investment when it came time to exit.

His strategy worked. He eventually sold to a third party and his transition to full retirement went smoothly. He began with the end in mind, he used strategic thinking, and he worked his long-range exit plan diligently.

Funny, isn't it, how when we started out, we spent most of our time thinking, planning and dreaming about how we were going to get into business. If we had spent more time strategizing about how we were going to get out of business, we'd be more successful, or at least more personally satisfied.

Plan Now

"Begin with the end in mind," says Stephen Covey in Seven Habits of Highly Effective People. There are nearly 14,000 powersports retail outlets serving enthusiasts, which account for about 5 percent of the U.S. adult population. This is a fragmented, niche industry with many retailers vying for the consumer's attention. Is it any wonder, then, that people aren't lining up to buy your business?

Even with new players from outside our industry becoming enamored with the powersports retail business, it's still not easy to sell your dealership, at least with the ROI you believe you deserve.

Now is the time to map out your specific exit plan with your attorney, CPA, bankers, family and/or an experienced advisor.

There are several methods of calculating the expected valuation of your business. The most popular are:

  • the multiple of planning volume that your manufacturer(s) establish for your market,
  • the multiple of trailing 12 month earnings, and
  • the multiple of future expected yearly earnings.

The specific multiples vary according to franchise, the success factors of the individual business, and the needs or strategy of the buyer.

If you want to exit within the next year, you'll likely get much less than you think you deserve. You need to plan at least two years ahead of your exit date.

Many factors come into play when establishing your exit plan, including timing, family, corporate entity structure, tax considerations, estate planning, legal issues, insurance needs, maximizing a sales price if you plan on selling. There are experts and advisors in each of these fields who can help you.

Next month: How your business structure can help or hinder a sale down the road.

Clark Vitulli founded America's PowerSports for which he served as chairman, president and CEO from 1998 to 2006. Send questions and comments to editors@dealernews.com.