How to Sell Your Dealership

I spoke to an NCM 20 Group in Chicago a few weeks ago. (Leo Hart was a great host). The group consisted of multi-franchised dealers. Many are looking to add stores to their collection.

While typically several hundred dealerships change hands each year, I expect 2008 to be a particularly active year for dealership buy/sell transactions. As mentioned last month, there are a number of reasons, including:

While the above reasons should drive dealership transaction activity, there are also push-back factors. These include:

So what does all of this mean to those of you who are considering selling?

I suggest you consider selling sooner rather than later. Many are projecting 2008 to be the worst year of light-duty vehicle sales since 1996 and I expect blue-sky values to fall.

If you are planning to sell, consider cleaning up your financial statements and right-sizing expenses and inventories now to show a prospective buyer that there is opportunity with your brand in your market.

While dealers are experienced at selling cars, many are not experienced at selling dealerships.

To get the best price, hire a broker. You may think they are pricey and sleazy. Some are, but many are honest.

So interview several and check out their references. Talk with buyers, sellers, attorneys and accountants that have worked with them in the past.

Also, know that broker fees are negotiable. Get a feel for the range of fees in the current dealership climate. Typically, the fee is based on a fixed percentage of the transaction dollars.

The percentage is usually higher on smaller dollar transactions and lower on larger transactions and often times have a floor or minimum fee.

When selling your store, the most important thing is not what the multiples are or the amount of blue sky received.

The most important thing is how much cash you have left after paying the broker, attorney, accountant and other professionals — and, of course, your taxes on the gain.

As a seller it's always better to show prospective buyers how they can make more money with the store than you could. Remember a buyer is more willing to pay a higher multiple if they see upside in the operations.

Is there opportunity in finance and insurance, fixed operations, expense reductions or used cars? Your broker will look for this upside in the operations and should have the data to support the findings.

Your broker will also “normalize” earnings by adjusting for such items as service-contract packs, management fees, excessive rent, family members in the business, owner's excessive compensation and the carrying cost of planes, boats and collector automobiles.

You get the picture.

A broker typically has more prospective buyers in mind than a selling dealer would. Since the broker is paid based on a percentage of the transaction price, it is almost always in the broker's self interest to get the highest price possible for the store. That has the broker and the seller pulling in the same direction.

With these thoughts in mind, you should have a smoother transaction.

Don Ray is a CPA and a senior vice president at AutoStar. He can be reached at 901-907-0134 and [email protected].

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