Thinking About Selling? Here is What to Look Out For...

All too often, dealers enter into sales agreements only to find their goodwill slowly eroded once due diligence commences. Here are 5 things to consider that could reduce your agreed upon goodwill.

Parts Inventory. There is a common anthem in a dealership that parts over 180 days are considered obsolete. When buyers are outlining definitions in a letter of intent (LOI) what they believe to be an obsolete part, they will typically only accept parts if they are less than 180 days, in original/un-opened packaging and OEM parts only. At the surface this may seem as reasonable but when you get down to analyzing your parts inventory, this could result in a massive reduction in your sale price. Think about your tires, washer fluid, wiper blades, oil and the many other non-OEM parts you stock in your inventory. Countering your buyer with a more open definition of what an obsolete part is could save you tens of thousands when closing your sale.

Manufacturer Adjustments at close. As an example, manufacturers that issue advertising/floor plan credits or dealer reserves when invoicing you a vehicle will typically pro-rate & reverse the payment then issue that pro-rated credit back to the new purchaser. If you have a common practice of not reserving these reserves/credits and instead take these into income immediately, this could result in a significant dollar amount that you would have to pay back. Speak with your dealer rep or review your dealer agreement/accounting guide so that you have a clear understanding how this could impact you.

Taxation. How should you structure your sale and which way is more beneficial for you? We strongly recommend that all of our clients consult with their accountant to discuss the tax implications from both a share and asset sale. Bear in mind, most buyers prefer an asset purchase versus a share sale as it removes any potential or existing liabilities from the buyer. There are ways to work around potential liabilities but you should definitely have your accountant present you with both options.

Staff. In an asset sale, the buyer will typically decide which employees they will keep and not bring back. As the liability remains with the seller, this could potentially result in you paying a significant amount of money as severance to staff that are not retained. Whether you are doing a share or asset sale, consider outlining your expectations of existing staff upfront.

New Vehicles. Do you actually know how many vehicles in your inventory have excess mileage on them (over 100km) or have been reported/registered? A common buyers definition of a new vehicle is un-registered/non-reported vehicles with less than 500 km’s. Consider countering this common definition to a higher KM number (750/1000/1250) and be sure to define what happens if they are in excess or have been registered. You likely don’t want your 2020 service loaner with 1500 km’s being booked as a used vehicle.