Posted on June 8, 2023 by Travis Peterson
Mergers and acquisitions of dealerships ramped up over the past few years and consolidations are still going strong. The biggest trend driving sales is a wave of older generational dealers hitting retirement age. Given the current market, whether you are ready to begin selling your dealership or just considering, now is a great time to start preparing.
Valuations are rising due to demand. Buyers are seeking high-quality dealerships to build sustainable businesses. Quality, not necessarily size, is a key factor. That’s why we’re seeing big players like Lithia buy single stores in Alabama and Washington State.
It’s not only established auto groups pushing up demand. More celebrities and athletes are clamoring to get in the game. The actor Mark Wahlberg, for example, now owns four dealerships in Michigan.
If you’re looking to sell, there are a few key factors you need to consider ahead of time. Neglecting to do so could mean settling for a lower price or not selling at all.
Readily Accessible Information.
You want a smooth, harmonious transaction when selling your dealership. That requires that information is readily accessible – especially finances. You need clean and accurate bookkeeping, along with access to audited accounting records for up to three years. A deal can easily fall apart if you’re not able to get your hands on all the documentation required by a buyer.
Preparing solid financials ahead of time will help determine a fair asking price while also identifying gaps or shortcomings. It’s wise to seek the assistance of your CPA as professionally audited financials often have more validity and the potential to increase your asking price.
Taking the time to collect and organize the right documents that demonstrate a profitable history will make your dealership more appealing to buyers. Buyers may also request vendor contracts, a list of debts, and more.
Switching to an online document management platform allows you to give your CPA immediate access to your records. Online document management makes it easy to search for and access all of your dealership documents. By storing documents outside of your DMS, your CPA does not have to be an expert in using your DMS and he/she can access data at any time without assistance from dealership staff. A vendor document storage solution is also valuable for easy retrieval of contract terms and conditions.
Closing a sale doesn’t mean you can walk away without a backward glance. You can still be audited years after the sale. The IRS can look back to as many as seven years when auditing a business. If it suspects tax fraud, it can go even further back.
Your OEM can also audit you after you’ve sold your dealership. Service warranty audits waned during the pandemic but they’re back now – some dealers say with a vengeance. The warranty-claims process is very paper-intensive, which can lead to lost documents. Web-based software that allows you to scan and store documents electronically is a simple solution with a big payoff.
A buyer will need complete access to all your data. A workable database is the key to a smooth transaction. Large dealer groups will typically have all of their stores using one DMS, and require new store acquisitions to do the same. However, data conversions performed by a DMS rarely retain the level of detail buyers need. For example, DMS conversions do not include historical transaction data; only balance forward totals. Buyers rely heavily on historical transaction data to ascertain profitability. Enlisting the help of a third-party data conversion and storage platform can ensure complete and useable data sets accessible on a physical hard drive or in the cloud.
If you’re considering selling your dealership or dealergroup, now is the time to start preparing. Get your financials in order, lean on the expertise of your CPA, and consider an online document management platform for easy record retrieval. Neglecting your due diligence could mean setline for a lower price, or not selling at all.