Owning an auto dealership today is big business. With ever-increasing competition, manufacturer retailing demands, data management, the Internet, an informed consumer and attracting and retaining the right team, the business is now extremely complex.
Add to that the pressures of being a dealer principal and it becomes quite easy to see how some dealers of all ages might be reconsidering their future.
The complexities are magnified when multi-location ownership is involved, it’s almost like juggling plates and trying to prevent any one of them smashing on the floor.
Some dealers know that their personal involvement has a time limit. However, they are not sure when that day will come. Some think it will never come!
Much like the “deer in the headlights” feeling towards ownership and management succession, so too does that same feeling occur when a dealer tries to time his/her exit from the business. There’s no question that for most single point and multi-franchise dealers this is absolutely critical.
There’s a common view that many dealers simply wait too long to pull the trigger on selling. And it’s this procrastination, that in most cases, costs that dealer a lot of money in the form of lost selling price.
Within my articles over the years I have encouraged dealers to constantly keep an eye on value. Virtually every move you make as a manager in today’s dealership business has a value consequence. If you are not focusing on value, you’re only hurting both yourself and your family.
The emotional attachment to owning a dealership or multi-store group is often the catalyst for procrastination. This is heightened if your name happens to be the dealership brand in the markets where you operate. For many of us, the auto retail business is what defines us. It’s our identity in the community.
Making a decision to step away from that is a very, very difficult move for some of us. More and more dealers and business owners in general are stepping aside. With the significant attention that baby boomer retirement is receiving these days, there is almost an expectation that dealers will do so echoing in the communities that know them well. That being said, our tenure as dealer principals will have to end at some point and we generally want some element of control in that process.
When is the right time to exit? The short and simple answer is when the emotional and value triggers align. Emotional readiness comes when you have an idea of what you and your family would want to do in life AD, (After Dealership). If you have some AD goals, it makes the hurdle of selling that much easier. Value readiness comes when you can get what you believe is a strong value for your store or stores from a qualified purchaser. We all know that there are dealer groups out there in acquisition mode. For some brands and in some markets there are way more buyers than sellers. When will this tide turn? Is there a chance that I might not be able to sell my dealership / dealerships if the economic and business environments change?
FOCUS ON THE REAL FINANCIALS
These are not easy issues to deal with. Value readiness is something you should be working on daily. Your financial statements are not simply to satisfy the Canada Revenue Agency or your bankers. In a buy/sell your financial statements become the main thrust for a potential purchaser to make an investment decision to buy your book of business. Annually, I would recommend you prepare what you believe are the real financial results, forgetting tax planning, personal and family redundant forms of compensation and non-arms length transactions at other than fair value. Periodic, but non-permanent OEM incentives should also be segregated.
Dealers often ask me what the current multiples are. Although there are averages, in reality each brand and situation is different. You don’t just want average. The only way to really know fair value for your store or stores is to test the market but that approach has distinct risks and disadvantages if you are not a committed seller.
The other approach is to get an outside opinion or a second opinion. This is not a valuation per se, but an informed outsider’s view of what your store or stores would be worth should a qualified buyer become interested. At a high level, this involves making value decisions based on your location, market and market potential, brand, facilities, staff make-up, operational synergies and normalized financial results. Once this process is completed, you will have a pretty good idea of what your dealership or dealerships might be worth on the open market. You also might gain some insight on how to ultimately increase the value of your store or stores.
At the end of the day however, the ultimate selling price will be based on negotiation and the specifics of your agreement with the purchaser.
THE REAL ESTATE FACTOR
Then there is the real estate. In my experience most purchasers will be happy to pay fair value as determined by a valuation, subject to any environmental or OEM locational issues with your property or properties. The valuation will also support future rents, should you decide to become a landlord, and provide valuable input for the normalized earnings calculations.
Ownership and management succession are big decisions for auto dealers and business owners in general. In many instances, the succession process leads to the decision to sell. Often this is driven by the dealer’s desire to monetize their investment and turn a lifetime of hard work into risk free capital. That risk free capital can then be redeployed to finance family entrepreneurial goals or serve as a capital base to support the dealer principal’s retirement lifestyle and estate planning goals.
After all, most dealers have never sold their store or stores before and really have no idea in how to go about it. They know they must do something but need a little help along the way. Reviewing the CADA Dealer Succession Planning Guide — A roadmap to your future is a great starting point. Getting a confidential second opinion on value is often a catalyst to making informed decisions and helping unblock that procrastination log jam.
