Tips on buying & selling dealerships

Be cautious yet aggressive, if and when you join the rising ranks of dealers buying or selling stores.

That's the advice from Gary L. Ellsworth, 48, of the Henry & Horne accounting firm in Mesa, AZ, an AutoCPA Group member which numbers 80 dealer clients in western states.

He says, "Like a child, once a potential deal is 'born,' your life will never be quite the same - It will hopefully produce more rewards than challenges."

Mr. Ellsworth urges that the bottom line of price be determined on calculated future values reflecting current borrowing rates as a guide to loan durations, the cost of taxes, and cash flows.

"The projected cash balances," he stresses, "will tell you if the price is realistic. But test the projections by cutting revenues and margins and/or raising expenses. Be realistic."

Mr. Ellsworth also recommends the following:

* "Before the process starts, make sure your real motives are identified and openly evaluated. Rule out non- economic motives (ego, anxiety over competitors, etc.) when considering a buy/sell."

* Get experienced help from advisors who have been through the process before. "Their assistance will help the dealer stay focused on the business while the buy/sell negotiations are moving forward."

* Keep the process moving. "More often than not, delays boost costs and frustrations, and raise the possibility of the transactions being called off.

* Don't ignore the factories. "Good, bad or indifferent, the factories have impact on the transaction. Never forget that. They can affect everything you may do. So research all you can about the involved automakers and how they may react."

* Carefully study every line of the documents yourself. Whether your lawyer or the other guy's lawyer writes them, "make sure they reflect your understanding of the deal. If anything is unclear or ambiguous, demand a language change. Vagueness leads to lawsuits."

* Keep the transaction "simple and straightforward."

Mr. Ellsworth developed his list of buy/sell guidelines during the wave of recent dealership purchase transactions.

He says consolidator payments for dealerships "have often raised values and prices unrealistically on the basis of inflated stock prices." He says they often fail to factor in declining market values down the road or takeaways suddenly introduced by automakers."