Even if you aren’t planning on selling your dealership, it always pays to run your dealership as if you are. Keeping the dealership free from unnecessary encumbrances and obligations will help you keep your operations streamlined and reduce your worries.
Here are some things you should be looking at.
Leases and Contracts
A dealer who wishes to sell is likely to be left with the obligations of long-term leases and supplier contracts unless the purchaser will accept assignment of those. Even if you don’t sell, if you wish to terminate the services of a vendor, your options will be limited if you have a long-term contract. You will want to be sure that you have as few long-term supplier contracts as possible. Under your dealership’s contracting policy, you should not be entering long-term contracts unless absolutely necessary. Contracts for things such as janitorial services, linens, and the like should be month to month. Even where contracts such as leases for equipment must be long-term, be sure they are assignable. Failure to control the dealership contracting process is one that continually leads to problems for dealers. Minimizing long-term contracts maximizes your flexibility.
What liens have you granted on your dealership assets? Quite clearly, your floorplan lender will have a lien on the floorplanned vehicles. Equipment lessors will have liens on equipment. However, watch the extent of the liens carefully. Don’t volunteer to provide greater lien coverage than necessary. Keep liens limited only to the assets being financed or leased, if you can. When you pay off an account, make sure that any accompanying lien is released. Avoid broad liens that can interfere with the security interests of other lienholders or that tie up assets that you may want to use as security for other loans or lines of credit.
Did you have a case which led to a judgment against the dealership? If so, have you paid it off? Then make sure the judgment is released. Unreleased judgments can become a problem down the line.
Do you provide to your customers benefits which are not funded? Examples are future rights to safety inspections, future vehicle loaners, even future car washes and oil changes. You may view these as business builders that any potential buyer should want. A buyer may view them as liabilities they are assuming that require a reduction of the price for the business. Consequently, make provisions for these kinds of benefits. Have a separate company that you fund that is responsible for providing these benefits. In the event of sale, the funding for these benefits can be transferred if your buyer does not view the customer benefits as business builders. Or, place in your documentation the right of the dealer to cancel in the event of the sale of the business or loss of the franchise. Unfunded liabilities can have a serious impact on the value of your dealership unless you make adequate provision for them.
What is the environmental status of your dealership? If there is uncertainty, a buyer will penalize the seller. Eliminate the uncertainty. Document the environmental status through a Phase I study. Clean up any issues found in the Phase I. Do further studies if necessary to eliminate doubt. Document all tank closings. Document any problems that have arisen and have been successfully remediated. Have all of the documentation available so that there are no questions about the environmental quality of the dealership. Even if you are not selling, if you wish to refinance your real estate, this information will be invaluable.
What right does the dealership have to occupy its premises? If leased, how long is the lease? What increases in rent or other obligations are on the horizon? If you own your property, what are the terms of your mortgage? Is it scheduled to mature shortly? Does the interest rate float which can threaten you financially in the event of substantial rate increases? Solid and secure occupancy rights not only encourage Buyers to maximize offers, they protect your peace of mind while you own the dealership. Be sure that you carefully protect your occupancy rights, and have important documents handy in the event of any questions.
How solid is the company’s liability insurance? Is there a possibility that a claim or judgment could cloud the title to the assets being transferred in the event of a sale? Make sure insurance is solid. Make sure there are sufficient limits in the underlying policy or in an umbrella policy to protect you. This will not only give a potential buyer comfort, it will give you greater comfort that your financial well-being is protected.