Successful succession: Want to pass your business on? You need a formal plan

Oct. 1, 2005

Every business owner has a different definition of success. How do you define success for your commercial tire dealership? Do you look for consistent volume growth? Are you after a higher profit margin? Is success being "numero uno" in your market area?

You must define your vision of success for your own business. If you have trouble establishing your vision, ask yourself, "How do I want my business to end for me?"

Some dealers want to pass their business on to one or more children. Others may want to sell their business to long-time workers through an employee stock ownership plan.

Often dealerships merge into larger regional or national chains while others simply liquidate and close. Weigh your options and then determine your own end game.

When you know your destination, you can then begin to map out the best route to get there.

The planning pickle

The people who are best qualified to establish a formal plan for your business are the members of your management team and yourself. The dilemma is that the group least prepared and least inclined to spend time planning also is your management team and yourself. Left to set priorities, you and your team will usually focus on day-to-day operations and problems and will postpone long-range planning activities.

As a business owner, you must recognize planning as a vital activity. You must make planning an integral part of each manager's job responsibility. Unfortunately, commercial tire dealers are quite creative when finding reasons not to plan. Here are some common excuses:

* "There's no time. We're too busy taking care of customers all day."

* "We've never had a plan before and we seem to be doing all right."

* "Things change too fast around here. We can't even plan for Friday, much less the year ahead."

* "I already know where I'm going. A formal plan wouldn't change anything."


* "I tried planning once and it didn't work. We had a couple of meetings but they just turned into complaint sessions."

* "I cannot afford the extra expense of a fancy plan."

* "If it isn't broken, don't fix it. I'm content to let the big issues ride for now."

* "Things are going smoothly. Why rock the boat?"

Here are reasons why you must plan:

* It's a given that changes will occur. Planning helps to harness change and turn change to benefit a company.

* Murphy's Law has not yet been repealed! Planning for the future prevents chaos in the face of new opportunities or threats.

* Your team needs to know what is expected and how they will benefit. With that personal knowledge, they will give their best effort.

Usually it's not that employees don't care -- more often than not, expectations have not been communicated and they fail to see the personal benefits. * The planning process energizes everyone involved. Each team member sees how his or her actions will enhance the company and his or her own future.

* You cannot escape! Not planning is a decision to "shoot from the hip" when competitors, suppliers or customers create new issues.


Effective planning

According to management guru Peter Drucker, "Objectives are not fate. They are not commands. They are commitments to action." Another wise man once said that it doesn't matter if you're on the right track -- if you're not moving fast enough, you'll be run over.

Business planning gives you a track to run on and energizes the organization to accelerate correct actions. Here's what you need:

* Your own vision. Start with your personal goals. From those goals, develop specific objectives for the company that will begin to accomplish your vision. A vision statement is strictly for internal consumption by the management team.

* Your mission statement. A mission statement can focus the entire organization on the primary goals for the company. It is for both internal and external consumption and paints a verbal picture of the company's future.

A typical mission statement might say, "To be recognized as the premier commercial tire dealership in our market area, we will strive to establish long-term relationships by providing unmatched service."

Time for review

Once you know how you want your business to end, you can carefully review your current situation. It is important for your planning team to make a careful evaluation from several perspectives:

* Industry trends. What are the important tire industry trends that will affect business over the next couple of years? Examples might include tire pressure monitoring systems, supply issues, increased national account buying, etc.

* Trade area trends. Examples could include levels of competitive activity in your own market, new businesses moving into the area, regional trends, etc.

* Internal company trends. Review recent sales and profits, along with the adequacy of existing facilities and human resources. Assess the condition of accounts receivable, inventory and other working capital factors.

Check to see if your company is balanced and if it's capable of sustained growth. Think of your business as a three-legged stool. When the legs are the same length, the stool is balanced and it will support you. Imagine what happens when one leg is too short!


It is difficult for a company to achieve significant growth while in an unbalanced condition. A sign of imbalance is when marketing makes promises to customers and operations cannot deliver on those promises due to lack of manpower or equipment.

Another indication of imbalance might be when building a new facility over-extends your finances and creates cash flow problems. A review of internal trends and conditions may show good balance between functions and resources. If not, there is an urgent need for planning.

Good planning allocates resources in advance. Major changes in resources affect other parts of your business. Look for all the impacts and weigh the benefits versus the costs.

Strengths and weaknesses

You and your management team should now stand back and make a thorough appraisal of your company's strengths and weaknesses. It's important to list as many points as possible. Be realistic and assess each point in relation to competition and industry standards.

Strengths might include length of time in business, your financial position, management systems, supplier relationships, etc.

Weaknesses may include high turnover of sales staff, the recent retirement of an essential individual, old equipment, etc.

The next step is a thorough review of your competitive situation.

Who are your major competitors in each market segment? Compare their resources with your own.

What are each competitor's advantages? What are their weaknesses? What can you surmise about their apparent goals?

Your management team should then try to determine the best tactics to use against each major competitor.


Primary objectives

After a careful review of your situation, you and your team can establish your own future business objectives, plus areas for improvement.

Consider what market-related changes are needed to move toward your company's vision and mission. For example, should you increase your OTR tire service program? Would greater emphasis on local fleets enhance profitability?

What improvements will be needed in physical resources? Replacement of older service trucks or investments of additional retread capacity fall into this category.

Human resources may need expansion or improvement. Is extra training needed? Is present staffing enough to handle expected growth in business? If not, what functions will need reinforcement?

Are job descriptions up-to-date? Does your company have an effective employee appraisal system? Are compensation plans synchronized with future objectives?

How will changes and improvements in other functions impact financial resources going forward? What actions are needed to ensure adequate working capital to support expected growth?

How will increased interest expense and additional depreciation expense from new investments affect your profitability and break-even point?

Once you and your team determine your company's future objectives, it pays to put the anticipated actions, changes and improvements into a narrative planning statement. (Morgan will show you how to do that -- and how to implement an action plan -- in the second installment of this series, which will appear in the December 2005 CTD.)

Trouble coming up with a plan? Bring in a facilitator

"Often a qualified facilitator with a proven planning process can be a valuable outside member of your management planning team," says Dick Morgan, president of Morgan Marketing Solutions Inc.

"The facilitator will help your team schedule time for planning and communicate specific expectations to the team."

The person you hire for this job will help you establish and stick with a practical plan, according to Morgan. "It is important for the outside facilitator to hold the (company) owner accountable for maintaining focus and continued progress toward the vision for success."

Dick Morgan is the founder of Morgan Marketing Solutions Inc., a member of the Tire Industry Association and former senior vice president of marketing for Long Mile Rubber Co. He provides management and marketing consulting for a variety of manufacturing, distribution and service firms.