By Dale Huggins, Total Dealer Solutions
Service parts, fixed assets — such as dealership-owned office equipment, phones, and furnishings – and special tools account for hundreds of thousands, sometimes millions of dollars, of your dealership investment but are often overlooked as a critical part of the typical buy/sell transaction.
You and your team probably spent months or even a year or more working out the details of the buy or sell agreement for that dealership you love. The deal is just about done, and you are already looking forward to taking the long-awaited vacation after you sell, or perhaps you are the buyer, and you can’t wait to include that perfect location and brand in your business portfolio when the deal finally closes.
The date for the contract to execute is scheduled, you are ready to go, one last check of the Asset Purchase Agreement (APA) related to how to handle the parts department inventory and then a flood of questions:
- Are we going to outsource the parts physical inventory or do it ourselves?
- When should we advise the staff that we are planning an inventory?
- Who will represent our interest during the physical inventory?
- Does the APA require that we complete a full inventory of all fixed assets including furnishings and computers as well as the service parts?
The last-minute need for service parts and physical asset inventories is all too common in today’s fast-paced business environment. Like any other business practice, planning is the key to protecting your investment and to make sure that you are not over or underpaying for the assets of the dealership.
Some suggested parts and fixed asset inventory best practices that may be helpful when it is time for your dealership transfer include:
- Start the parts and fixed assets inventory planning process and contact early. Confidentiality of the pending transaction should not prevent you or your team members from developing plans for how you accomplish the physical inventory requirements of the APA.
- Decide if the service parts department and hard asset counts will be handled by existing team members or if you require an outsource to conduct counts. Ask yourself: does the buyer/seller have a strong preference to hire and deploy an independent party to remove partiality from the processes? Will results need to be certified?
- Determine the timing for the event(s). If you are working with an outside provider, the provider will need to know the requested day, time, project size as well as the current DMS to plan their resources.
- If you decided to work with an outside vendor, ask them to sign a confidentiality agreement and to provide their current insurance liability certificate (COI) if they will be working on site.
- Have a backup date/plan in mind and in hand and share it with any outside vendors that you have recruited for the project. Many dealership transfers end up delayed by days, weeks and sometimes even months.
- Share the APA allocation values with your service provider or accounting staff so that these values can be correctly divided up between buyer/seller.
- If there are changes to the inventory timing, needs, or requirements be sure to communicate those updates quickly so that internal/external resources are retasked to avoid additional downtime or costs.
- Plan on having your most experienced personnel available to observe the inventory process to review and sign off on results including the amount of obsolence found during in parts inventory. There is always a limit on manufacturer returns, so it is imperative that you are comfortable with the age of all parts that are included in the final reporting.
There is no better time to employ outside resources to perform the parts department inventory or to tag, record, and certify the assets of the business than during the buy/sell event. A qualified outside provider will be able to produce an accurate and impartial reporting of the values that will protect your business interest. Many providers are capable of providing the parts department inventory, asset collection, and valuation and inventory of special tools as a packaged service.
Qualified service providers will be able to provide customer contacts and references for previously serviced buy/sell events as well as samples of inventory reporting and proof of insurance.