Common Mistakes Dealers Make When Selling Their Store
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Most dealers sell a store once in their lives. That makes the process unfamiliar, and unfamiliar processes invite mistakes. Some are small. Others cost real money or sink a deal outright. Working with an experienced dealership broker, such as MD Johnson, an automotive M&A advisory firm focused on sell-side work, can help owners avoid many of them.
Here are the mistakes that come up most often, and what to do instead.
1. Starting with a number instead of a plan
Owners often hear a figure at a 20 group meeting or from a friend and anchor on it. Every store is different. Brand, market, adjusted earnings, real estate and fixed operations all shape value. Start with a proper review of at least three years of statements, the approach MD Johnson describes for its own valuation step.
2. Hiring the advisor who quotes the highest value
This one is tempting. An inflated valuation feels good during the pitch and painful later when buyers will not pay it. MD Johnson says it will not give a "pie-in-the-sky number just to sign an engagement agreement," and its private advisor briefing names inflated valuations as a costly mistake when hiring an advisor. Ask any dealership broker how their past valuations compared with final sale prices.
3. Ignoring the fine print in the engagement agreement
Fees, retainers and tail-period clauses deserve close reading. A tail clause can require a fee if you sell to certain buyers after the engagement ends. Know what you are signing. MD Johnson states that its fee is paid at closing, by the client only, with no retainers.
4. Talking to one buyer only
An unsolicited offer from a single blue sky multiples by brand group may be fine, but without other qualified buyers there is no easy way to judge it. A controlled, confidential process with several buyers gives you comparison points on price and terms.
5. Letting confidentiality slip
Telling too many people too early can unsettle employees and invite competitors to talk. Use NDAs, route contact through the advisor, and plan when managers will be told.
6. Treating real estate as an afterthought
If you own the property, you must decide whether to sell it or lease it to the buyer. Rent levels, lease terms and property value all affect your total outcome. Sort this out early. MD Johnson notes that its real estate subsidiary, MDJ Realty, handles the real estate side of a buy-sell at no additional cost.
7. Overlooking tax structure until the end
Asset sales and stock sales are taxed differently, and the allocation of the purchase price among goodwill, equipment and other assets matters. The IRS publishes general guidance on the sale of a business that is worth reading before you meet your CPA. Bring your CPA in at the start, not after the LOI is signed.
8. Letting the store drift during the sale
Buyers watch performance until closing. If sales fall or key staff leave, the buyer may try to renegotiate. Keep running the store as if you are keeping it.
9. Underestimating manufacturer approval
In a franchised buy-sell, the factory must approve the buyer. Picking a buyer with a weak approval path can stall or end a deal. Qualify buyers with approval in mind.
10. Going without a closing plan
Final inventory counts, parts and used vehicle treatment, title work and funding all come together at closing. MD Johnson describes an onsite closing with the seller's attorneys and CPAs. Whoever you hire, make sure there is a clear closing checklist.
The common thread with a good dealership broker
Nearly every mistake on this list comes from moving too fast or relying on too few people. A good dealership broker slows the right parts down, brings the CPA and attorney in early, and keeps the process confidential and organized.
This article is general information, not tax or legal advice. Consult your own CPA and attorney about your situation.