By Sandi Jerome, Sandi Jerome Computer Consulting
We recently reviewed the DMS renewal contract for a client of ours and noticed that he had signed up for a huge discount plan that involved a 7-year contract extension. The only problem is that he had told me that he planned to sell by 2020; five years from now.
When I asked about the extra two years, he replied, “that will be the buyer’s problem; my goal is to maximize profits to get the best price when I sell.” Unfortunately, that is not how many buyers and DMS companies see the issue of a DMS contract. If it is an asset sale, then the DMS system might be sold as an asset, but the new corporation or former buyer might be liable for the remaining 2 years on the contract.
How can you start planning now, if you plan to sell your dealership in the next few years?
In a previous column in this publication, Mark Counts, partner at Counts, Bonacci & Smith, tells us that the “best place to deal with the transference of a DMS contract is within the DMS contract itself not the buy-sell agreement.”
But my client argued that the DMS provider was not willing to budge on any of the terms and without a longer term there would be a huge increase in the monthly fees. Should this dealer consider changing DMS systems if he plans to sell in five years? Can better planning today help you sell your dealership in the future for more money and keep more of the proceeds?
For many dealerships, the DMS expense can be one of your largest outside services. If there is a possibility that you could be selling your dealership in five to ten years, the goal now would be to reduce that expense as much as you can to present the most profitable financial statement. But there can be hidden expenses in the apparent savings. If this new DMS system causes you to write off balances, lose out on service up-selling opportunities, increase your parts obsolescence or hire more staff; then it wasn’t a bargain.
Consult your staff
How can you find the best DMS for the lowest price and still avoid costly mistakes? The best way is to get your staff involved now. I realize that you might not want to let them know you’re changing DMS systems to get a better price for the dealership. But since many of them will probably stick around long after the new buyer arrives, why not get a DMS that they will like and believe in?
During my twenty years of consulting, I have seen DMS systems fail – but they are the same DMS systems that work fine in other dealerships. I often say that 50% of dealerships should change DMS systems, but it is usually the wrong 50% that make the mistake and toss out a perfectly fine DMS. How can you minimize the risk of picking the wrong DMS for your dealership? I suggest creating a technology committee that is made up of various department personnel; the controller, a receptionist, a parts manager, an advisor, the warranty clerk, and even a salesperson. You want a wide spread of opinion and expertise.
One of our consultants met with a technology committee that she had trained for this task during NADA after they had visited the big booths belonging to the various DMS options available to them. She was amazed with their insight into the various pros and cons that had taken all of us at Sandi Jerome Computer Consulting years of DMS consulting to uncover.
Each one was able to see through the “smoke and mirrors” of future technology and go carefully through our checklist of features to see what mattered to them. If you would like a free checklist, please send me an email. After your technology committee has picked 2-3 systems for you to buy, then you can get the price and contract terms for each. Many of the newer DMS providers don’t require a long-term contract and are “month-to-month.” Yes, it will be a year of upheaval while you convert to the new system, but hopefully you’ll have a DMS that helps you get the most from the sale of your dealership.
Sandi Jerome is a computer consultant and DMS technology expert. She can be reached at sandi@sandijerome.com or 1-360-406-5062 X706. If you would like a free review of your buy sell clause in your next contract, email it to Sandi Jerome.
