Many auto dealers and agents have worked hard for years, many for decades, building their businesses, and at some point have thought about when the time comes to walk out the door for the last time. 

Questions surely filter through their minds, at least the back of their minds: When? How? And what next?

Professionals who make it their business to guide such sales, though, say those questions, at some point well before a sale is entertained, must move not only to the front of the mind but into the business owner’s circle of advisers. And if they lack advisers, they should build that circle ahead of time.

Making such a life-changing move can be complicated and will go much more smoothly if an owner plans ahead with professional guidance, they say.

“It’s not uncommon for us to get calls from folks after they’re approached with an offer or after they’ve gone out to market,” says certified financial planner David Stahl, a partner at Plante Moran Wealth Management who’s based in Detroit.

Many of the mergers-and-acquisitions advisers and investment bankers Stahl knows in the Motor City tend to keep busy on such deals, he said, and there never seems to be a lack of suitors, so it pays to be ready if the right opportunity comes up.

“It’s never too early to start planning,” he says, adding that doing so can make a big difference in bottom-line results.

Gina Cocking, CEO of Chicago-based investment banking firm Colonnade Advisors, agrees, saying there “are always buyers,” though on the agency side some of the bigger ones have slowed the pace of acquisitions, and it can therefore take time to find the right buyer. 

First Off, What’s Next?

One of the biggest considerations Cocking advises business owners to reflect on is what they’ll do after they sell.

“They all think they’re going to hang out on beach, buy a yacht, and they’re going to be unsatisfied with that,” she said. “They just built a business – they’re an entrepreneur and going to be an entrepreneur. In my experience, the people who are happiest in retirement tend to continue on being active in business.”

Will the seller build another business? And on the agency side, they could be expected to stay on to help the new owner make the transition and roll over some equity so they “have skin in the game,” said Cocking, who also pointed out that the typical negotiated noncompete restrictions last five years post-sale. Many buyers will also want to wait to see whether any earnout targets are hit. 

All of those considerations make it important that business owners don’t wait until they’re ready to retire to start preparing. 

“The alternative is to have a good team in place when you sell, which takes planning” and money, Cocking said. That means a team that could run the business after the founder leaves, including the type of quality CFO and president that other businesses would want to poach, instead of a marketing specialist. 

She also counsels business owners to sell when their companies are still growing, not waiting until they’re at their peak.

Financial Considerations

Beyond the business itself, Stahl and Cocking say owners should work to organize their finances – personal and business – well before they go to market to sell, to both assess their current state and estimate where they’ll be after the transaction. 

“Early planning can make sure that as much of that top line as possible is kept by the owner and their family after income and estate taxes,” says Stahl, who emphasizes the importance of professional guidance, particularly in sales to strategic buyers that are old hands at the process. For instance, tax experts should be versed in transaction planning, which is starkly different from annual tax planning, he says.

The business owner, if he or she doesn’t already have them, should hire professional advisory experts to sort through their personal and business accounts to establish the current state of affairs and estimate what the closing balance would look like after a sale.

The team should include an expert on estate planning, they say, because at least until 2026, heirs of estates valued at more than $14 million for individuals and over $28 million for couples will pay estate taxes of 40 cents on the dollar after the benefactor dies, Stahl says. That tax rate is scheduled to sunset in 2026, when the threshold will be cut in half, though that’s still a high threshold.

Cocking emphasizes that estate planning, even if done before a sale, should be revisited afterward.

“I encourage business owners to have a good financial adviser or two or three,” she says, for “a diverse set of viewpoints.”

“They should have wealth-management advisers, not accountants, to help them figure out where to invest their money … and balance everything out.”

Cocking recommends going with major investment banks with wealth-management firms that have strong regulatory compliance teams, instead of local financial institutions, first testing “them for a couple years with a small amount money.” 

“They’ll understand real estate, private investments, and more importantly have an opportunity to introduce clients into opportunities that the client wouldn’t have another way. They might have a chance to invest in one of their [private equity] firms. If they don’t know something, they can bring in experts.”

Also on the financial side of the process, owners should decide ahead of time where to invest the proceeds of the sale, the experts say. 

“You build a business and grow it at 10 to 15% a year, good luck trying to find investments that are going to do that for you,” Cocking says. “Owners struggle w/ that.”

Stahl walks clients through the options. “You could put it in a local bank or credit union or in a large financial that you don’t have to think about. Do have it in something yielding what it should.”

The Big Picture

Even for business owners who do the work of planning ahead, the process leading to a sale tends to have multiple curves, some of them blind, Stahl says. So it’s important to establish a vision from the outset that can help keep one centered despite the unexpected turns, he recommends. 

“Talk about knowing your why. There are all sorts reasons why an owner may wish transition the business. When they do get into the sale process, no matter how well they prepare, it is tough. There are all sorts of things that come up. Having a sense of the why can in those moments help them recenter, focus and ultimately respond to the inevitable hiccups that occur in the process in a way that’s consistent with what they’re trying to get out of it.”

Along those lines, once a business owner identifies his or her “why” and entertains potential buyers, he or she should ensure that the one that rises to the top fits the vision, Cocking advises.

“They should spend time getting to know the individuals who will be overall managing their business … because it’s going to be an important relationship for the subsequent couple years for them,” she says. “[We] make sure clients like the buyers ... Money is one thing, but the relationship is really what matters.”

Cushion for Sanity

When all of those considerations have been accounted for, the business owner should build in time for an all-important step, since running a business while going through the challenging process of a sale takes a toll, Stahl advises. That means basically shutting out the madding crowd.

“Put time between the sale and making decisions with by-yourself time,” he says. “I have yet to meet an owner on the day after transaction that is bright-eyed and bushy-tailed and ready to take on the world.”

RECENT TRANSACTION: Eastern Penn. Dealerships Sell