EXPERT ADVICE FOR SUCCESSFUL DEALERSHIP SALES

Article by Farid Ahmad, Founder and CEO

AS FEATURED IN AUTOMOTIVE NEWS

For many dealers, figuring out whether or not to sell their dealerships is one of the most important decisions they’ll ever make. What factors should they consider? Is it still a good time to sell? And what value does an adviser bring to the table?
Here Farid Ahmad, the Founder and Chief Executive Officer of DSMA – an automotive intelligence and mergers and acquisitions advisory service with more than 1,000 years of combined industry experience – brings clarity to this complex process. DSMA has performed more than 1,900 valuations and completed more than 450 transactions in North America.

Q: How should a dealer prepare a dealership for a sale in 2024 in order to appeal to more buyers and maximize the value of the dealership?
Farid Ahmad: There are several crucial steps that every seller must undertake to not only facilitate the sale of their dealership, but to also sell it for top dollar:
• Ensure all financial statements are up to date and accurate. Focus on refining the balance sheet to present a clear picture of assets and liabilities. This entails a thorough review of accounts receivable, payables, contracts in transit and factory warranties, including the assessment of their age and status.
• Clean up the used-vehicle inventory by removing any units that have been in stock for more than 90 days. Conduct a comprehensive inspection of remaining inventory to ensure frontline standards are met.
• Facilitate dealer trades to eliminate aged new-vehicle inventory so your remaining stock reflects current model years.
• Conduct a comprehensive site inspection with a discerning eye. Attend to any maintenance needs promptly so you can present the dealership in its best light.

Q: What should a dealer look for in hiring a sales adviser?
Ahmad: I would recommend that dealers seek an advisor with:
• A demonstrated history of successfully navigating dealership transactions, showcasing expertise and proficiency in the intricacies of the industry.
• High ethical standards, which ensures integrity and transparency throughout the sales process.
• A broad and influential network within the automotive industry, which facilitates access to the best and most buyers.
• Strong evidence of past successes, which indicates the adviser’s ability to deliver favorable outcomes for clients.
• Glowing testimonials from previous clients, which reflect their ability to deliver exceptional service and results.
• A selling approach that aligns with your preferences and comfort level, which fosters a collaborative and productive working relationship.
• The expertise to accurately valuate your dealership, which helps ensure a maximum return.

Q: Let’s say a dealer decided to sell in February. Now it’s August. What red flags or warning signals should make that dealer reconsider a sale in 2024?
Ahmad: After all the preliminary steps outlined earlier have been diligently addressed, the dealer must assess several critical factors to determine the viability of proceeding with the sale in 2024. These considerations include evaluating the market demand for their franchise, the effectiveness of their marketing strategies and the potential impact of seasonal disruptions such as Thanksgiving and Christmas. Failure to secure a deal by these pivotal dates could make the dealership seem overpriced.

Q: If you’re considering a sale today, does it really pay to wait until next year or even the year after?
Ahmad: The decision to defer a sale until the upcoming years hinges on three pivotal factors: the state of the economy, the desirability of one’s brand and the seller’s preparedness to enter the market. Predicting market trends entails a degree of uncertainty and informed decisions must be made based on available information. Presently, the United States market is robust, but could be influenced by the ongoing election cycle. Yet, the post-election landscape and subsequent policy shifts may introduce new dynamics. Provided the preliminary steps outlined earlier have been diligently executed, including the selection of the right adviser, and your brand is doing well, it is always a good time to sell, regardless of the temporal context.

Q: If you are a dealer in a rural area, a single-store dealership or a family-owned dealership with no obvious succession plan, does it make sense to even wait for a better buy-sell market, or should you just sell this year?
Ahmad: The decision regarding the optimal time to sell is contingent upon various personal considerations. Factors such as the seller’s health, age, the tenure of dedicated employees and overall satisfaction with the business play integral roles in determining whether it’s appropriate to wait for a more favorable buy-sell market. It is essential to recognize that personal fulfillment and well-being should be prioritized alongside financial considerations. To date, I have never seen a Brinks truck following a hearse!

Q: Given all the deals that DSMA has closed over the years, in good times and bad, what are some of the lessons learned or best practices discovered that might help a dealer who is looking to sell?
Ahmad: During the past 10 years, we have gained valuable insights that can guide dealers who want to sell their business. These include the importance of meticulous upfront preparation before bringing a dealership to market. We recognize the necessity of qualifying potential buyers to ensure they have their finances in place. We have learned not to take a listing when the seller is asking for an unreasonable price that we have confirmed is far from its market value.
Our valuations align closely with the true value of a dealership, often within a margin of two to three percent. Furthermore, we have come to appreciate the multifaceted nature of the selling process, which requires a well-rounded team equipped with diverse skill sets.

Q: The word “uncertainty” is often used to describe 2024. How can a dealer get past this uncertainty?
Ahmad: Uncertainty is a great word to describe the current market situation. In the face of potential interest rate fluctuations throughout the year, selling your dealership this year may be the best decision. I would say that one statement has always stood the test of time, regardless of the market: “If you could have, you would have.” Some sellers want to wait until their dealership is firing on all eight cylinders because they feel the store has potential. But some dealers have a hard time grasping that in order to capitalize on the potential of an underperforming store, it takes risk, financial investments, hard work and technological advancements that they may
not possess.

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