By Kenneth R. Rosenfield, CPA
In the very recent past, we have spent significant time with our clients both small and gigantic to review, discuss and advise on the option to sell the dealerships. These are the words that fill the conversations: “fatigue with the manufacturers”, “tired of the stress of selling cars – its not like it used to be,” “no one in the line of succession,” “the kids are not interested in taking over the business,” and so on.
So where do we go from here? Some questions we ask include: Is age a factor? Will an employee buyout work? “My employees are great but cannot afford the price.” So, then we discuss what is the motivation for getting up every day. Do you even need to go in every day? What is your management team’s expectations? Do they feel the stress of the owner losing interest?
If there is lots of equity in the real estate, and the business is not highly leveraged, and its employees are a group of highly talented individuals with high passion for the business that enjoy what they do every day (it is not work to them), then you may have the ingredients for a successful plan to sell the dealership to the staff!
This can be accomplished through an outright sale to the staff for a promissory note while the dealer is still active in the business and able to develop the right people to run the business when the time is right. This is all subject to the stars aligning, the right timing and mix of people.
Also, coming back into high regard is a leveraged Employee Stock Ownership Plan or ESOP. This can be very beneficial for a transition to the staff with favorable tax benefits to the dealer. There are a number of tax advantages to an ESOP including possible deferral of capital gains on the sale, a more manageable and controllable timeline in selling the business, ability to remain active in the business and to keep the culture and the workforce of the company intact as they have a great incentive to stay on! This method can even allow a staged or sale in intervals that allow the staff to get the feel of ownership, and transition over a period of time so that both the owner, and the staff are secure in the transaction.
Large privately-held dealership groups have a different environment. The high price will reduce the potential buyers to a limited number, including publicly traded groups, family office owned-groups and private equity groups. If the interest exists within some or all family members, then a sophisticated transition among family can occur. Sometimes this comes without drama, and sometimes drama will manifest before, during or after a plan is set in place.
Of course, sometimes a buyer falls into your lap from out of nowhere and offers more than you think the dealership would attract, and you say “honey, we sold the dealership!”
This happened to one of our clients a couple of months ago. In this case, although not looking, the owners were prepared to sell their business in every way. The business was doing great, the financials were in great shape, customer penetration and loyalty was high, and the staff enjoyed working together. And, the kids stayed in the business and got some ownership in the new company! But you certainly can’t rely on this kind of fortunate occurrence.
So, when you are considering whether to sell your dealership, the best advice we can offer is to look in the mirror, dig deep and find out where the happiness is. Sometimes there is no choice, a dealer may pass away suddenly with no exit plan in place. In many cases, we have seen the spouse/widow take over the business and become extraordinarily successful, due to the passion and desire for the family business to remain intact. The real key is to focus on the current dealer and determine what the level of desire to continue running the dealership is. And good luck!
Ken Rosenfield is the managing partner of Rosenfield and Company PLLC, a CPA firm of “car guys” with offices in Orlando, Florida, and Manhattan. The firm has one of the largest automotive practices in the country, with a nationwide client base. He can be reached at ken@rosenfieldandco.com and 407-849-6400
