By Marilou C. Vroman, CPA, CFE
Buying and selling dealership’s is no small task, nor is it something to be taken lightly. With transactions that can take months to complete and involve tens to hundreds of millions of dollars, both the financial risk and reward can be overwhelming. Here are some items buyers and sellers should keep in mind as negotiations heat up.
Employee Matters
Employee compensation plans - Have there been any significant increases in management compensation since the signing of the APA?
Payroll considerations - Most closings will not occur conveniently at the end of a pay period.
Employee Vacations – How are employee vacations and time off accrued and paid?
“Sacred Cows” - The Dealer’s daughter or son, the Service Manager’s nephew, etc. – It is important to gain an understanding of employee relationships and their roles in the dealership.
Non-disclosed, undocumented employee privileges – Certain employees may enjoy peripheral benefits that are not part of their pay plans.
Loyalty to the seller – Certain employees will understandably maintain a degree of loyalty to the seller.
Customer & Vendor Matters
Legal matters and customer relations – There is a risk that certain transactions may have “gone sideways” prior to the closing date and the customer was dissatisfied, but the customer’s complaint, or the attorney’s letter will not surface until after the dealership is sold.
Verbal promises to customers - The APA will typically be address the treatment of customer obligations such as deposits and “we-owes”.
Pricing arrangements with vendors – Certain vendor relationships may exist with Management where pricing may not be competitive as a result.
Purchase Price Matters & Adjustments
The APA will be straight forward on the purchase price of the assets of the dealership. Following the closing; however, certain omissions may be discovered and there should be a provision in the agreement as to how these items will be addressed. The honor system would be great but is difficult to enforce. Some of the items that could surface after the closing are discussed below.
Fixed assets – A detail fixed asset schedule will typically accompany an APA with a list of all the equipment, furniture and fixtures etc. that will be transferred.
Miscellaneous inventories and supplies – The dealership will be likely stocked with reams of paper, toner cartridges, brake clean, postage, and various types of office equipment and supplies.
Proration of revenues and expenses – Certain bills may come in following closing such as rent, utilities, advertising, data processing, and so forth.
In considering the acquisition of a dealership, there are many items that can end up falling between the lines of the APA. The scenarios listed above are just a sample of the potential items that could surface during the course of the dealership acquisition process and after the transaction is finalized.