In recent years, staging has become big business in residential real estate. A whole economy has emerged to prepare your principal residence and vacation properties for resale.
It’s quite disheartening as a proud real estate owner to hear that your home is not perfect, needs a touch up here and there and needs different furniture and lighting to be attractive to a prospective purchaser.
In some recent discussions with dealers, many are surprised to learn that selling your dealership is no different. We are all extremely proud of the businesses we have built.
But we often have tainted impressions on how attractive our business is to an informed and experienced acquirer.
For many of us, selling our long-time dealership is one of the most emotional and difficult things we will do. That’s partly because most of us have never sold a dealership before. Many of us have purchased stores or expanded but few of us have actually sold stores.
Many dealers I speak with get hooked on the value of their brand and multiples. First of all, let me just say that you cannot run interference for your brand when dealing with a prospective purchaser.
You cannot control the market’s impression of the brand. But you can certainly control the impression of the job you are doing in representing that brand in your local market.
It’s your right and it’s your job to point this out. It’s how you run your dealership that creates the quantum of goodwill (bluesky), not just the sign on the dealership.
Don’t fall for the high multiple option and certainly don’t get hooked on a high asking price for no real reason. A little reality here will go a long way in getting a done deal.
Goodwill is not an add on but rather the residual that is left over when cash flow is measured against desired rate of return and tangible assets. The multiple is the end point, not where you start. It’s merely a guideline.
There is an art to selling a business, much like selling a new or used car. And just like today’s new and used customers are much smarter and informed than ever before, so are the folks looking to buy your store.
You might think you can frame the opportunity in such a way as to convert the purchaser of your views, but in the end, it’s the purchaser’s views and opinions that are going to drive the price, not yours. Priced too high, prospective buyers will simply walk away.
Conversely if their offer is too low, you might walk away.
It’s similar to holding a used car for high gross and after 120 days coming away with less than the original offer you had on the unit 100 days ago.
What I like to tell my selling clients is that in the months leading up to making contact with a prospective purchaser, you must prepare by viewing your dealership as though you were buying it in its present state.
Seems simple, but it’s not. Thinking objectively, what would you pay to acquire your store and what conditions would you want?
This is the beginning of the staging process.
When you purchase a dealership, what are you looking for? There is no one answer to this question.
It depends on your philosophy. Some dealers want a minimum threshold for demonstrated historical normalized profits. Others prefer to purchase distressed dealerships.
Some are adamant about brands and others are just interested in ROI. Some buyers want turnkey operations — others don’t care.
By listing what you would look for if you were purchasing your store, you are indirectly beginning to weed out certain types of acquirers. This is very important and defines how you will stage your store for sale.
You know your store, the local market, the brand and your people better than anyone. You also have concerns about certain aspects of your operations. It’s those concerns that you must address first hand and understand how they will be viewed by any prospect.
You must be comfortable and realistic about them. It is only then that you can see the potential and how to position that potential when the prospect tells you that your baby is ugly and your price is too high.
You also need to confirm that what you think is great about your dealership actually is.
Some dealers want the prospect to assume all their employees’ obligations with no purchase price reduction, holdbacks or indemnities, and pay the highest goodwill in the market for that brand.
It’s not because your dealership is a top performer but more so you think it has the potential to be one.
Alternatively, you can take the approach to showcase all the great things about your store, facility, market area, brand and people, fully documented and supported. You need to do this ahead of time, well in advance of speaking to any prospective purchaser.
Often a few hours in your boardroom listing all the critical aspects will give you the framework to move forward. Your objective is not to write a book about you and your dealership.
Rather, you should be able to put your hands on the critical information to support your asking price, in preparation for when the prospects ask their questions while trying to decide whether to submit a letter of intent.
Coming across organized is a real advantage for a seller. It puts the prospect at ease and gives them the impression that you operate a tight, clean business, one they really want to buy.
At this point, the legal and accounting parameters are not important. It’s your impressions of your business and how it operates that are important. What would attract and convince you to buy your dealership?
Once you have your framework in good shape, you then can start determining what type of purchaser should be approached. When I work with a dealer, it’s not until this point that we construct a target list of prospective purchasers.
It’s important to rank your list by priorities that are important to you. Often deciding factors are items such as respect, reputation, positive personal interaction, deep pockets and/or previous unsolicited discussions.
Most dealers are concerned about how their employees will be treated. You do not want to run into your former employees post-closing, knowing they think you sold the farm from right underneath them.
When you are reviewing your annual financial statements with your accounting firm, it’s likely you enter into some planning discussions to position your company for success in the future.
If you don’t have this level of discussion annually, I’d suggest you start at your next meeting. The worst things to kill a deal are negative surprises at the last minute.
To summarize, staging your dealership for sale involves exposing the good points and massaging the not-so-good ones to develop an open, honest and refreshing approach to your store, the local market, the brand and your people.
This will help support your asking price to entice a prospect to want to enter into a transaction to purchase your dealership.
Your goal here is to get a letter of intent. Then the hard work of due diligence, deal structuring, OEM approval and finalizing a purchase agreement and other deal specific issues will hopefully be timely and follow a much smoother path because of your leg work.
