AUTOMOBILE DEALERSHIPS

Things to Keep In Mind to Ensure a Smooth Buy/Sell

Tood Merriam CPA

Todd E. Merriam Manager, CPA

1 October 2020

During the height of COVID-19, we saw some buy/sell activity delayed  As masks become the norm and business returned, buy/sell activity resumed, and deals that were delayed were completed. These transactions ranged from dealers buying their first stores to larger groups growing their footprint.

O’Connor & Drew, PC takes an active role in buy/sells by preparing the closing statement for the transaction. This process is quite involved and requires coordination with the management of the buyer and the seller, attorneys and floorplan sources. As part of our services we also assist the buyer with preparing the opening entry to be recorded in the dealership’s management system (DMS).

The following is a list of some items to keep in mind after a buy/sell occurs to ensure the new dealership and its accounting function run smoothly:

• It is very common after a buy/sell for the buyer to end up incurring costs which are the responsibility of the seller or the seller to incur costs which are the responsibility of the buyer.  As you begin operations, create a list of items that you believe you should be reimbursed for.  After about two weeks, this list should be presented to the other side for reimbursement. Most purchase and sale agreements contain a clause that both parties will work together to resolve any post-closing issues.

• After the sale, implement a parts matrix. For warranty reimbursement, most manufactures will reset your dealership’s warranty parts reimbursement rate to a default of cost + 40% mark-up. If the manufacturer resets your warranty parts reimbursement rate, the dealership must submit for an increase based on the average parts gross profit on a sample of customer pay repair orders. Therefore, it is very important to implement a strong parts matrix on day one so you can maximize the warranty mark-up you submit to the manufacturer.

• Office managers should utilize the dealership’s DMS to begin reconciling cash everyday.  Ensure prior to the deal that office managers have logins to the bank account. Prior to the deal there was most likely bank activity that occurred. These
transactions should be reviewed and recorded to ensure cash reconciles.

• The office manager should setup all standard entries to ensure items are being expensed on a monthly basis. (Garage liability, workers compensation, depreciation, property taxes etc.) This will ensure these expenses are reflected in your
first monthly financial statement

• The selling dealership should make arrangements with the purchaser on winding down operations. The selling dealership will still receive payments from receivables and invoices after the close occurs.  In some situations, the selling dealer’s office manager will stay on with the new owner. If this occurs, we have seen agreements where the office manager will assist in managing receivables and payables for the former dealership while working for the purchasing dealership. If this is not the case, arrangements should be made to receive mail addressed to the former dealership so any remaining transactions can be completed offsite.

• Work with your lender to understand any covenants which must be met in your floor plan agreement. By having an understanding of any covenants, these can be monitored on a regular basis to ensure compliance.

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