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Mistake #1 - Taking the Wrong Advice From the Wrong Adviser
When you begin to even think about selling your dealership there is an "army" of experts ready to advise you on every aspect of your sale.
Everyone from the business broker that button-holed you at the last convention to your accountant who has given you good reliable advice for 20 years...and lawyers...and appraisers and your insurance person...and your brother-in-law...the list goes on.
Some dealers I know even consider their accountant...or their attorney...part of the family...they've been through so much together.
And most are well intentioned...
But...if they've never owned a dealership or two, and sold a few...this is totally uncharted territory for them...and to preserve the value of your store you have to recognize that fact (many don't)...or the consequences for you could be severe.
For most dealers this sale of your dealership is a once in a lifetime transaction...different from any other you have ever made (and if you don’t understand that you’re leaving money on the table!)
Unfortunately your trusted and well intentioned advisor may have helped close a transaction on a dealership...but...hasn’t creatively maximized the profit for the seller…
In fact it may be much worse than that...
Because your adviser is trying to relate this deal to some other transaction they were involved in...probably un-related to the car business.
On occasion, when it comes to accountants and attorneys, you’ll find one who knows how to protect their client and move the deal to a sale...
But that’s not always the case...
Especially when it comes to selling your dealership.
I worked with a dealer who had started from scratch and built up a great store...It was at its peak in terms of value...but at that time there weren’t a lot of buyers looking for deals in his area.
We managed to find and develop a buyer...
But the accountant insisted on a stock sale. After almost losing the deal…we were able to present an offer at a higher sales price to more than compensate for the additional tax liability.
But no matter how strong your relationships with your attorney, your CPA, or your accountant, it’s important to realize that they’re not experts in selling dealerships.
Attorneys and accountants understand how to protect their clients’ legal and financial positions. And business brokers know how to go out and find a buyer. But there’s more to it than picking a price and structuring a deal.
Most accountants and attorneys don’t know how to look at the overall impact of transferring a dealer’s assets to someone else. And unless they’ve sat in the seat you’re in now, most business brokers favor deal quantity over deal quality.
A word about Business Brokers: There are essentially two kinds of business brokers. Those who do a high volume of transactions and those that maximize value for the seller.
When you decide to sell, the instinctive reaction my be to call the “volume guy” because once you make that decision...you want your transaction done as soon as possible.
But a careful understanding of how to best position your business to optimize the value to you and your family takes time...no two ways about it. The high volume guy frequently can’t take that time...they’re already working on their next deal…instead of figuring out how to put more money in your pocket where it belongs.
Conclusion: There are a lot of well-intentioned and competent business brokers, CPAs and attorneys out there. But selling a new car store is different, in many ways, from selling just about any other business. And because you don’t want to send the wrong message…and because there’s more to the best overall “value” equation, it can translate into less money in your pocket at the end of the deal. Be smart. Order our free briefing report:
“8 Questions You Must Ask Before You List Your Store With Anybody.”
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #116.
Mistake #2 - Thinking That They Can Do A "For Sale By Owner"
Selling a business of this size is a complex transaction.
Many questions have to be answered, details collected, calls returned, etc.
It is not uncommon to talk to 100 "nosey dealers" just to get to one buyer.
The one thing that most dealers don't understand...the day they decide to do a "For Sale By Owner" is that they now have two full-time jobs...one is running the business and the other one is selling their business.
First of all they are immediately confronted with a dizzying cluster of complex decisions that will make a big difference in the price they get.
Questions like:
How can I even talk about selling my dealership without letting the "cat" out of the bag and potentially lowering my sales price?
What are you going to do with the real estate, sell it, lease it?
How do I price the dealership to attract the best value/price for me?
How do I get a fair price even though my sales are lower now?
Where is the real value in my business...the franchise, the location, the market?
Then The Dealer Has Another Level Of Questions To Answer
One dealer recently said to us, "Hey, my family lives out of the store, what are we going to do, my health insurance, my cars, the gas, eveyrthing comes out of the store?...How am I going to present a deal if I take a lot of money on the expense side and don't show much profit?"
Most sellers are thinking from their viewpoint rather than the prospects'. A big mistake in this situation.
My Buddy Will Buy It
One of the first things that a "For Sale by Owner" generally does is go to his buddies, or his competitors. This accounts for most of the "For-Sale-By-Owner" prospecting.
Those 2 groups know far more about the "negative aspects" of your business and as a result they tend to discount the value.
A buyer from out of town, who wants a certain market, is usually looking at a bigger picture and is willing to pay more to get what he wants.
Another Major Factor
In this day and age another factor can be critical. Not only do you have to find a buyer...you have to make sure that buyer can get approved by the factories...not an easy task at times.
Often, when a buyer is not carefully screened and qualified, a lot of hard work goes right down the drain when the factory doesn't approve the new buyer.
You're faced with starting over again at (or near) the beginning with the added "cloud" that your last deal "fell through" and this has a powerful lowering effect on the price you can command.
This word on the street will affect your value.
Conclusion: For sale by owner usually means less value for you in your sale. On the surface it sounds like it may make sense, but talk to anybody who has lived through it and you’ll probably get a different story.
Get our free document: 7 Pitfalls of “For Sale By Owner” Thinking
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #117.
Mistake #3 - Thinking That Their Buddies Are Going To Give Them The Best Deal
A lot of car dealers in similar markets are good friends.
They compete with each other, and some see each other socially.
Most of them have local and state associations. Many cities have a new car dealers association that meets regularly.
Each dealer gets to see his neighboring competitors' registrations...knows exactly where unit volume is...sees his facility...and even drive the lot occasionally.
And each dealer gets to learn even more misleading details and rumors about his buddies from the wholesalers...especially when it's bad information.
So, all in all, dealers have a pretty good feel for what's going on in their neighboring competitors' businesses.
The Setup
The tendency is for the seller to think that this man is his friend because they've known each other for 25 or 30 years. And, he is his friend.
Over the time, the friend will always say, "If you're ever thinking about selling, I want you to promise that you'll call me first."
And, while it seems like that would be reasonable, and no matter what the friendship is, they are still business people and they are still competitors.
And, not surprisingly, the seller is in a serious frame of mind, but they buyer may not be in that same frame of mind. He wants to buy as cheaply as he can.
It shouldn't be a problem. After all, they are both businesspeople. And they are still competitors.
And when a would-be buyer-friend asks for first dibs on a dealership, not surprisingly, the seller is in a serious frame of mind. But the buyer is not in a serious frame of mind.
The buyer wants to buy as cheaply as he can...buddy or not. The buyer is thinking about all the negatives related to the dealership.
He's not trying to rook the seller--his buddy. He's just like the rest of us. He wants to get the best deal that he can.
The Horror Story
For example, I worked with a dealer for about six years helping him position his business for sale.
The seller and his competitor...a buddy of about 25 or 30 years...had a friendly lunch of a couple of times each year.
Sure enough, while having lunch one day, the friend says, "If you ever think about selling that thing, I hope you'll always remember to give me a shot at it."
And the seller says, "Well, in fact, I am thinking about selling it. In fact, I've signed a deal on...it's pretty much done."
Because the selling a dealership is a hair-raising time in any situation, the seller is stressed...anxious...he's got too much to do and too many decisions to make.
Now, the buddy adds to the turmoil by asking, "Well, would you sell it to me for the same deal?"
This simple conversation throws the whole deal into chaos...
The Fix
Unless your buddy is competing with somebody out of town...out of the local loop...the price you get will usually not be as good as it should be. In most cases, locals tend not to pay full value unless they're faced with competition from an out-of-town, would-be buyer.
It's not that your buddy-buyer is trying to pull the wool over your eyes. You've got to remember that where a local buyer sees an opportunity to get bigger...an out-of-town buyer wants to move into a new market.
All he sees and remembers are all the negative aspects of your market, your reputation, your location...everything.
And he uses that against you when you're ready to sell. Generally speaking, a local dealer will pay less for the deal than someone from out of town.
And, if a buddy does decide to step up and pay fair market value, it's only because they believe that somebody outside the territory is going to come in and steal their customers.
Conclusion: Even though the dealer down the street is your friend, their offers and subsequent conversations could undermine your plans to get full value for your dealership. Sometimes local dealers want to pay less than dealers outside your market.
Get our free document
"3 Profit Robbing Reasons You Should Never Sell to Your Buddy"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #118.
Mistake #4 - Thinking The Kids Are Going To Take Over The Business, Even When There Is No Evidence To Support It
Want to keep it all in the family?
Lots of dealers think their kids will eventually want to take over the business.
It seems reasonable. After all, most dealers have put everything they've ever had into it.
Many times, they've worked for 20 or 30 years. You start by selling one used car for a profit...and build it up into something great over the years...you're proud of it. You don't want to see it end.
Most dealers with children probably have had the dream at one time or another that their kids will come into the business, take it over and end up with generations of family involved in the business.
Trouble is, the charecteristics of a successful car dealer are so different today that generally, I'd say there are more unhappy second generation car dealers than there are happy ones...they're doing it because you wanted them to...not because it's their dream.
They are the proverbial round peg in the square hole.
When a guy has built up a business and turns it over to his son or daughter, it's always still his business. The dealership never belongs to the children, never. Never ever. It's always their dad's.
Think about it...how many kids are going to be happy telling daddy's story 30 years after he's gone?
Surprisingly, if the kids want to be "in the business"...there are some strategies you can employ to help make that happen so everybody wins.
Conclusion: Rarely does it make sense for your kids (or other family members) to take over your business. Historical data show that these dealerships don't work out as planned.
Get our free document
"Four Reasons Not to Turn Over the Business to Your Kids and One Reason It could Work"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #119.
Mistake #5 - Letting The Staff Find Out A Dealership Is For Sale Via The Rumor Mill
Remember that horror story I told you about? Where the seller just about had a done deal and then his dealer-buddy threw the works into chaos by asking if he could have the same deal?
Now the seller had been preparing for this sale for a while. It took him six years to set the stage and get all his ducks in a row. But he kept quiet about it for the entire time.
Well, as soon as the dealers part ways after lunch, they drive back to their respective dealerships.
Before the seller gets back to his, the wanna-be-buyer calls his manager and says "What do you think about me buying that other store?" The manager says "Oh man...that would be great."
They hang up the phone and the would-be buyer's manager calls the seller's manager and says, "Hey, we're buying your dealership." The seller's manager says, "Well, I didn't know that"
The seller walks in the front door after lunch and his manager comes up and says, "Hey, I hear you're selling out to so and so."
Could be an innocent mistake...but the buyer could be thinking that if he can get the rumor mill going...if he can create instability there...he'll get a better deal.
And it could easily happen!
If long-time employees start fretting about the sale, they could jump ship or at a minimum lose their edge due to the uncertainty they might face in a change.
Conclusion: If the rumor mill starts before you're well on your way to a successful deal, the price you realize can erode substantially. There are 5 key things you can do today to prevent your business from being victimized by the rumor mill...send for our free mini-report, "5 Keys To Stopping The Rumors Before They Start"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #120.
Mistake #6 - Getting Overstressed And Forgetting To Take Enough Time
Selling a dealership can be an extremely stressful situation...if you don't mentally prepare yourself for the process.
You may have planned and prepared for it and caught the best time to sell...and have a few good offers in the works. Or, you might be wanting to sell...but you're not getting even one decent nibble.
Or, you may be selling for reasons out of your control...(it happens over 40% of the time)...like if your health takes a sudden downturn, or if you're faced with a long-term family crisis.
Or maybe you're ready to enjoy the fruits of your labor after working for 10, 20, 30, 40, or 50 years.
Of course health and family concerns make the transition even more stressful, but even a planned sales can take a toll...here's why...
You're faced with making all these decisions about the sale...while you've still got the full-time job of running your business...and bringing your family through the process as well...
You've got a lot on your mind...
And there's always at least one crossroad in the deal...a point where the wrong decision could cost you a few dollars...or the entire sale...and if you haven't taken the proper precautions...you might stumble...or run into a wall...and make the wrong choice.
My best advice to dealers getting ready to sell...in any situation...good or bad...is to do whatever you normally do for relaxation...or get away from it all like you normally would...but do it MORE OFTEN during the six-month period of time before and during the sale.
Do it for your wife and family. Do it for yourself.
So when that major decision is staring you in the face...when that crossroad comes in a deal...when some unforeseen event blows in like a storm and tries to knock you down flat...you're ready or you're in good shape for the shape you are in.
Conclusion: The sale of a dealership is stressful...no question. If that stress interferes with your normal good judgement you might zig when you should be zagging...and that could reduce your dealership's value. A few simple steps can help you through (and the best time to know what they are is now, before you're in the breach)...
Get our free document:
"5 Tips On Reducing Stress During The Sale of Your Dealership"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #121.
Mistake #7 - Being Inflexible On A Deal Without Understanding The Real Benefits
Want to get the most out of your dealership when you finally sell?
Park your attitude at the negotiations door.
A major mistake many dealers make is in trying to say, "This is the way this deal is going to be done. Or I ain't going to do it."
The profit on the sale just took a nosedive.
I'd say that most dealers let their emotions get involved in the process that way.
But what they often don't realize is that they can get much more value out of a deal...and much more money...if they do it the way the buyer wants to do it.
Fact is dealers have been getting the job done for all of their business careers.
They get it done for the factory. They get it done for their employees. They get it done for their customers. So, it's only natural to want to get it done for a buyer.
But, it's not the best way to get what you want.
I remember a seller that had the attitude like this:
"I've got to do this...I've got to do that, and if I can't do those things, then the hell with them...I'm not going to do the deal"...
Sadly, that approach can reduce your value in your deal...sometimes by 50% or more (if you don't blow it altogether).
And if a dealer says it right to the buyer's face...look out...it could cause the deal to blow-up completely.
The more serious the buyer is; the more qualified he is; the closer to the buying decision he is--the more sensitive he is to this kind of talk.
Conclusion: Succession can be a difficult time...the same drive and skills that made you successful owning a store could work against you during the transition.
Get our free document:
"3 Things to Forget You Ever Knew About Closing A Deal When You Sell Your Dealership"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #122.
Mistake #8 - Not Having Some Kind Of Plan For How They're Going To Sell The Dealership Even If They Don't Think They'll Sell Any Time Soon
The best time to sell something is when somebody wants to buy it.
Generally speaking, when it comes to car dealers-when things are good, they don't want to sell.
But when things are bad, it's hard to sell.
So instead of looking at the decision to sell over a six month period of time, broaden that to maybe a five- or eight-year period of time. Make a plan for your sale.
What happens then is that you can catch the crest of the wave for your particular business cycle...your franchise...your area of the country...your market.
And then you find that you're able to sell it when somebody wants to buy it instead of selling it based on your personal cycle.
Too many people sell during their worst personal cycle, rather than during their best business cycle. And they lose more value and money...without even knowing they're losing it.
Look at it this way. There are many reasons dealers get in the business--but when it comes time to sell...optimizing your gain should be at the top of your priority list.
Want to find out where you are in the value cycle? We have a spreadsheet that will help you come up with a rough estimate of where you are.
Conclusion: The sooner you get your plan together, the more flexibility you'll have for realizing the biggest gain from the sale of your dealership...whenever that comes.
Get our free document:
"Not Having Some Kind Of Plan For How To Sell The Dealership...Even If It's In The Distant Future"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #123.
Mistake #9 - Not Getting A Trusted Adviser On The Team With A 3-10 Year Planning Horizon
What should a dealer do even if he has no intention of selling in the foreseeable future?
I liken it to finding a dentist when you move to a new town.
If you don't find one when you don't need one, you're going to have to find one in a hurry some Saturday when your tooth is throbbing and when all the good dentists are either on the golf course...or booked.
For example, I know a guy who called me up when he was thinking about putting up a highline store that his son could eventually take over. Well, they had been in the domestic business, and I knew that area and market.
So for him to go and open up a highline store in a bad place, in a bad location...he'd just be stacking the cards against his son.
Well, we met with the client, and he asks me again..."What do you think?"
"I think it's a bad idea," I told him again.
"Well, what should I do?" he asks.
We talked about it some more, and he told me he talked to a guy at Chevrolet who said, "Well you know, sometime we are going to do one over there."
"So, go after that one," I suggested.
And, it worked out to where he got his $20 some odd million, and the son has his store.
Trouble is, sometimes it takes a long time to work through those peripheral issues. You've got to think about where you want to go down the road, and make plans now so when you arrive at that spot, you're ready for it.
Issues that surround buying and selling dealerships can't be handled like issues handled between the Lone Ranger and Tonto.
You can't go up to the bushes with the answer man; have a three minute dialog; say, "Okay, that's the answer," then ZAP! Off you go.
Nor is buying and selling a dealership like appraising a car. You walk out there, walk around it, sit down in it, crank it up, and may even drive it around the block. What happens next? You're compelled to put a number on it.
You just can't do dealerships that way. You can't figure out a price when you've been there your whole life...or even when you've been there 10 or 20 years.
There are just too many peripheral issues involved. Your emotions. Your family. Your future. It really does take time to intuitively digest everything that's going on.
Distractions, Distractions
Another thing that happens is that dealers often don't understand how much the decision-making process leading up to a sale distracts them from running their business.
So what happens if they don't develop a long-term on-going relationship with an adviser, is in that last 12 months, 18 months, or however long it is before closing day, they are forced into making a whole lot of stressful decisions that will distract from the performance of their businesses.
When that happens, dealers unwittingly reduce the value they get out of it.
After all, you can't focus on five things at one time. And if you try, you're not going to focus on everything well.
On top of that, everything you do at that stage brings with it some kind of implication.
If you've thought all the implications through in advance, instead of running off to find Tonto at the last minute and struggling through every distraction, you'll make better decisions.
Conclusion: More than 40% of new car dealerships sell for reasons beyond the owner's control. And the best time to plan for succession is when it isn't staring you in the face
Order our free document #124
"Succession Planning When You Don't Have Time To Plan"
Note: If succession is staring you in the face we have some ideas that can help you with that as well...order our free report: "Succession Planning When You Don't Have Much Time To Plan"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #125.
Mistake #10 - Not Preparing The Financial Statements For The Sale
What's one of the first things you think a potential buyer (and his advisers) wants to look at when they're considering your dealership?
Sure, they look at the lot...at your equipment...at your inventory...your market.
But they will look at your financial statements for strengths and weaknesses.
After all, buyers are always looking for a warning sign that a deal is bad.
So for him to go and open up a highline store in a bad place, in a bad location...he'd just be stacking the cards against his son.
Re-cast your statements in a more realistic light (on a go-forward/cash flow basis)...
It makes sense?
Some dealers are a little concerned about the way their financial statements look...they may have a bottom-line that is much greater than what shows on their statement.
For example in the past we've had dealers with boats, airplanes, condos, racehorses, farm machinery, a boat captain, a farm, a family-member demonstrators, family-member cell phones, unrelated insurance cost, off statement income, unnecessary employees and additional non-productive expenses.
All that might be ok when you are running your business, but when it comes time to sell it artificially depresses the true picture of your store on a go forward basis.
We had a client with less than $800,000 profit on his statement. After our thorough preparation of a "go forward/cash flow" recast his bottom-line ended up at over $2 million profit.
A key to getting the greatest value for your dealership is working with a firm like ours that has the experience and expertise to understand all the questions to ask that will expose the hidden profitability for a new owner.
Explain the past...sell the future...
Conclusion: Your raw financial statement can send the wrong message to a prospective buyer. Uncovering your hidden profits can make your dealership worth a lot more than you might think. This can also help you speed the deal to a conclusion. Order our free booklet, "5 (Ethical) Operational Steps you Can Take To Improve Your Financial Statements Before A Sale"
Call 1-866-714-9941 (24/7 recorded request line) and ask for document #126
Conclusion
Unfortunately, there are a lot more than 10 fatal mistakes you can make today!
Instead of putting your energy, effort and money into fixing any fatal mistake after the fact, it may be time to take a more careful look at how you can protect yourself with a succession plan that saves aggravation and increase the value of your business.
Take advantage of the tools offered.
Learn and understand the latest approaches to preserving your wealth, making smooth transitions, and maintaining your sanity (it's easier than you might think)...
The business climate will continue to be chaotic...but with a little investment of your time you can reap big rewards for you and your family.
To receive a complete set of the documents referenced in this report, please call our toll-free, recorded message line (Call 1-866-714-9941) and ask for document package "B"...instead of playing, "come from behind," you'll be ahead of the game...
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