Pub. 4 2015-2016 Issue 1

14 San Diego Dealer To Improve Your Dealership’s Value, Start with a Plan By Diane Anderson Murphy, ASA, and Sid Tobiason, CPA, Moss Adams LLP I ncreasing dealership value is a topic close to heart for most business owners. Some may be positioning themselves to execute an exit strategy, in which case improving business value has a direct impact on their ultimate transaction price. Othersmay be planning to enhance value purely for their own return or before passing a store on to the next generation. Regardless of your objective, the bottom line is this: Business value is a key factor in any number of business objectives, and taking the time to increase it now will pay off in the long term. Here are a few of the best ways to drive your value higher. Create an Effective Strategic Plan While prospective buyers care primarily about the future earnings of a business, they also care about the ability to forecast, plan, and manage that future. Your ability to create a strategic plan and explain how it will be executed, particularly explaining why actual results differed from the strategic plan, all demonstrate management strength and a level of predictability to a potential buyer. Note that your plan and actual results should aim to maximize profits, even if it results in increased taxes. Prior to a sale, your dealership’s priority to maximize earnings showcases its profitability and resulting value to the buyer. Though it’s always advisable to complete both short- and long-term planning and projections, it’s even more important in the years before a sale of a dealership. An effective plan will include the following com- ponents, which form a comprehensive, actionable course for achieving your desired future state: • Historical perspective • Target customer and community initiatives • Competitor best practices • Attention to maintaining strong manufacturer relationships • An analysis of strengths and weaknesses • A long-range vision, goals, and strategies for how you’ll prioritize them • Annual objectives and the tactics you’ll use to achieve them • Annual and quarterly action plans • Key performance metrics Align Your People with Your Objectives As a best practice, your compensation packages should align employee and management behavior with the outcomes targeted in your plan. Your human capital, management, and staff influence the value of your business. Having the right people on the bus and also in the right seats—as author Jim Collins says in his book Good to Great: Built to Last and How the Mighty Fall—is your key objective. Furthermore, implementing a strategic plan requires employment engagement. Essential in creating a successful feedback loop is your ability to effectively communicate the plan, manage it, and report on your progress against it. Sometimes having long-tenured and experienced management and employees leads to strong organizational capabilities and effectiveness. However, if that isn’t the case for your dealership, it may be time to upgrade your human capital. In the absence of effective, experienced personnel, focus on people who have the energy, positive attitude, enthusiasm, and ultimately the accountability to create positive financial results. Empower your team to accomplish your goals, and provide support as needed. Make sure they know that your business and their pay are dependent upon satisfied customers. Plan and prepare for management succession, ensure someone well-trained is poised to step in following any planned retirement, and identify and train individuals who have the potential to step up into a new role after an unplanned exit. Examine Your Numbers In formulating your strategic plan, compare your financial performance against that of your peers not only as an organization but also for each department. Key sales and gross profit benchmarks should be estab- lished and regularly monitored, supported by effective balance sheet management. Celebrate successes, and recalibrate where you encounter below-average results. Second, study your largest expense categories: people, advertising, and your dealer management system (DMS). To increase the impact of your spending, provide employees the training they need to do their jobs effectively, carefully measure the results of advertising, and hire a consultant to analyze dealer management system (DMS) bills or contracts for redundancy or noncompliance with terms. Third, review your franchise portfolio from time to time. If some brands don’t generate a return sufficient to warrant the effort by your people, sell or terminate them. Tidy Up Your Financial Statements Because your financial statements are the basis for a prospective buyer to review your dealership’s performance, they must be accurate and easy to interpret. In most cases, dealer statements aren’t adequate