Planning the Future: What Now ?

Larry Jefferies is an independent collision repair industry consultant and former Vice President at CARSTAR Canada. You can reach him at larry.jefferies@cogeco.ca. (Photo: Huw Evans)

Considerations for Succession Planning.

I have a long-standing habit of reading the daily news feeds that share information from across the globe about the collision repair business. Much of the information shared currently focuses on the signifi cant changes that are impacting the repair of collision- damaged vehicles, along with the continuing acquisitions (particularly in the U.S.) by the large consolidators.

Both of these key current issues provide a precursor to what is on our doorstep as far as what your business needs to focus on to stay relevant.

Linking this information to the need for collision repairers to be planning what their future will look like in a few years is an interesting exercise.

A little research on small businesses in general, shows that they have on average 13 employees and 18 years in business, which certainly covers off a signifi cant number of the collision repairers in Canada.
In general terms:
• More than 60 percent don’t have a plan and are not working on one.
• One-third plan to leave the business within five years—60 percent being gone within 10 years.
• Most don’t have the time to develop a plan—their focus is on helping the business succeed now.

Taking the time now to address the challenge of looking forward needs to be an important consideration.

Are you prepared for what is next for you and your business? The clock is ticking.

Things that matter:
• Your age.
• Business structure.
• Current financial position and business management.
• Size, in terms of sales and location.
• Planning to remain relevant—you understand and are engaged in updating your equipment and training and the current trends.
• Engagement with a network or franchise.
• Engagement with OE certifi cation.
• Your position in your market vs your competition.
• How you are responding to what the experts are saying about the challenges of repairing collision damaged vehicles going forward, in particular, accident frequency and severity, and complexity of repair.

There are really three options for your consideration:

• Passing the business on to a successor.
• Transferring ownership through a management or employee buyout.
• Selling the business to a third party.

There is a fourth option that is much less desirable, but worth a mention. The business simply becomes irrelevant and closes.

To avoid the fourth outcome, you need to take a few fundamental steps. You need to have a clear understanding that all outcomes take time to bring to fruition, so you need to plan to take time to work on your business.

All succession options require you to recruit the resources to explore your options effectively. Those include financial advisors, a strategic planning coach, resources to manage your business structure, and a trusted advisor that understands the changing industry dynamics.

Let’s take a look at each of the three options in a little more detail.

Succession to family
Many “family” business owners have the vision for family involvement early on in their life. Bringing this to reality has its challenges. Many business owners have shared that they believe their children need to get the education and the opportunity to explore other careers rather than simply take on a role within the business out of school. Some turn to the trades as the means to learn the business, while others are focused on gaining formal business training (college or university) that provides them the option of looking at other industries and career tracks. Experience shows many do come back into the business.

Owning and operating a collision repair business going forward will be challenging but, with proper planning and investment, will provide the next generation—who are well versed in business acumen—with a reasonable opportunity for a healthy future.

Transferring ownership through employee buyout

This is a viable option that, again, requires having a long-term plan. It starts by developing a strong team for your business today. Recruiting the right team, both technical and management, is a significant challenge in itself. Being able to bring to fruition the ability to engage those same employees into shareholders that would acquire your business over time is another significant challenge. I have seen it work a few times.

I have also experienced a number of scenarios where, with the best of intentions, you have the right people to assist in managing the business today, but then for those same people to have the capacity and the financial means to acquire the business doesn’t work . This is defi nitely an option that needs long term planning and the expertise of advisors to bring to reality.

Selling the business to a third party

This is the route that many current business owners have been following today. The industry trend of current collision business owners acquiring additional locations within their market has been signifi cant in Canada.

Not so much the same model is currently driving the industry in the U.S. with institutional investors funding major MSO’s to grow to hundreds of units, but on a smaller scale, with those that are acquiring up to 50 units, often located in specific states or regions.

This option also requires signifi cant planning and fl awless execution of the plan to ensure this opportunity turns to reality and delivers the fi nancial outcome desired.

Key considerations for today

There are several fundamentals that you need to put in place today, regardless of the path forward that best suits your needs.

Financial considerations—fi nding the balance of continuing to fund your personal lifestyle from your business earnings vs. having a clear and accurate picture of the business’ ongoing and sustainable performance.

Timing—if you are investing to remain a top tier repairer with the current technological changes in vehicle repair requirements, and are engaged in the growing opportunity to gain certifi cation from one or more OEMs, you have time to figure out your options. If you are hesitant or don’t have the means or the desire to reinvest, then the window for fi nding an exit strategy is quite limited.

Business plan—you need to have a strong business plan that provides a defined path forward. This includes having the right advisors in place. No plan equals no future!

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