Is It Time to Sell the Store?

Two good times to sell your dealership are right before the market goes bad (tough to predict) and when it is on its way back, because other dealers want to expand to take advantage of good times.

Selling your dealership is not something you decide one evening and announce to the world the next day. Maximizing the sales price for your dealership, while protecting it through the process, requires a substantial amount of work.

Here are things to consider.

Value what you are selling. What is a realistic goodwill range for dealerships of your brand, and how do factors, such as your location and past performance, affect that?

How about the sale or rental value of your real estate? Do your new cars have damage or excess mileage? Do you have obsolete or otherwise unreturnable parts in inventory? Do you have overaged used cars with unrealized losses?

Develop a pro forma analysis of what you can expect to wind up with. Don't end up paying liabilities from your own pocket. Work with your accountant or controller to create a set of calculations of net proceeds from various hoped-for and expected selling prices.

Be brutally honest and do a realistic analysis of the funds that will be coming in at closing on the deal and the funds that will have to go out at and after closing.

Reductions from the proceeds must be fully taken into account, such as loan payoffs, the tax on LIFO (last in, first out) reserve, chargebacks, and other taxes and expenses to settle claims and wind down the business. This will help you develop your bottom-line selling price.

Inspect your facilities and equipment and with a buyer's eyes. Clean up and do necessary repairs.

Have an environmental inspection done before you even start the process to see where you may have issues. Remedy problems since they may spook buyers and their lenders.

Review the dealership's monthly accounts payable, figure out whether payments are made for contractual liabilities, and identify contracts to be assigned.

If you are going to ask a buyer to accept assignment of a storage lot lease, a computer system lease, an environmental services contract and the like, include the obligation in the buy/sell contract.

If you sign a buy/sell contract without providing for them, you run the risk of going to closing with enormous liabilities leaving you at the mercy of the buyer.

Be prepared to disclose to a buyer any issues that are likely to be raised by your franchisor. If the factory wants improvements or changes, you can be sure it will demand those — and more — from a buyer to approve the deal.

You don't want to get involved with a buyer, ink a deal, and then watch it crater because the manufacturer's demands for a bigger showroom or for a de-dualing are unpalatable for the buyer.

Prepare a descriptive package of your location, facilities, and operations. Include financials, pro forma financials that add back expenses a new owner won't experience. Include other important materials that tell your story. This will allow you to take control of the process.

Do not release a package without a confidentiality agreement. A sound one requires the potential buyer to acknowledge that certain information is confidential, including the fact that your dealership is for sale.

Develop a list of prospects. Consider strategic buyers who have a particular reason to buy your store, dealers who have expressed interest over the years, and dealer groups, including public companies.

Retain an attorney early. A lawyer experienced in dealership buy/sells can help you prepare a confidentiality agreement and your disclosure materials, assist you in develop a plan, help you structure and negotiate the deal, develop a solid buy/sell agreement and work with you to close the deal.

Michael Charapp is an attorney with Charapp & Weiss, LLP. He specializes in representing motor vehicle dealers and be reached at (703) 564-0220 or [email protected].

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