Closing the Deal:
What to Keep in Mind when Buying or Selling a Dealership

Todd E. Merriam Manager, CPA

8 October 2019

One of the services O’Connor & Drew, PC offers its clients is accounting assistance when buying or selling a dealership.  Whether you are on the buying end or the selling end of a buy/sell agreement, one of the most stressful parts of the transaction is the actual “close.”  While in a perfect world the buyer and seller would sign the closing statement and part ways, there are many items that need to be considered and information that needs to be prepared in order to have a successful and efficient close.

Below are some key items you will need to keep in mind when buying or selling a dealership:

• A parts physical inventory should be performed by an outside third
party before the date of the closing.  If any time has elapsed between the inventory physical and the date of the closing, the value of inventory purchased should be adjusted on the closing statement for any parts sold or stocked into inventory by the seller.

• Preparing a listing of the value of new and used vehicles being transferred to the buyer is one of the more labor-intensive parts of preparing for a closing. Vehicle inventory purchased by the buyer should be valued before the closing date and reviewed on the day of the closing for any vehicles the seller sold the previous day. The valuation method for new and used vehicle inventory should be
documented in the asset purchase agreement.

• When it comes to used vehicles, a listing of all used vehicles that the buyer has agreed to purchase should be prepared along with the agreed-upon sales price. The condition of used vehicles should be inspected by a representative of the buyer prior to the day of the closing.

• There are several details that go into valuing new vehicle inventory.  The buyer of the dealership typically purchases new vehicles at the manufacturer’s invoice price less holdback and manufacturer’s incentives (floorplan & advertising assistance). Since the seller has already collected these items, they are subtracted from the price of the vehicle. Failure to perform a detailed analysis of each new unit in inventory could result in the seller leaving money on the table or the buyer overpaying for inventory.

• Floorplan lenders are important players in the buy/sell process. The day before the closing the floorplan lenders of the buyer and the seller should be in communication to determine the floorplan liability payoff figure. It is important to keep your bank in the loop of when the closing will occur so the final payoff figures on the closing statement are accurate.

• Any vendor contracts that the buyer is assuming should be agreed upon before the date of the closing. If any of the contracts being assumed have been prepaid by the seller, then the buyer should credit the seller for a prorated portion of the contact.

• While the buyer and seller are ready for the closing, your state’s registry of motor vehicles may not be ready for the change. Your specific state will have its own procedures to transfer the dealer license from the seller to the buyer. If a transfer of the dealer license has not been finalized, it may hold up the closing due to requirements of the manufacturer and floorplan lenders. There are many items that need to be considered before the date of the closing. In many cases, buyers and sellers will attend the closing meeting with a small army consisting of lawyers, bankers, accountants, and brokers.  It is important in the days leading up to the closing for all of these parties to communicate with each other in order to ensure all the necessary information is obtained and prepared. By planning ahead and keeping the above items in mind, your closing can be a stress-free and efficient process.

For any questions regarding buying and selling a dealership, please feel free to contact Todd E. Merriam, CPA at (617)-471-1120 or [email protected].

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