By Ken Thrasher, Chairman, Compli
Ken Thrasher of Compli
According to a recent survey of private auto dealers conducted by MD Johnson Inc., dealers sell for three main reasons: 45% are struggling with succession issues; 36% are tired of running a dealership and want out or wish to retire; the remaining respondents say they are driven by other interests.
Whether you are looking to buy or sell, it can be a lengthy process given all the elements of regulations, determining value, transferring inventory, managing employees, etc. However, there are proven tactics that will help streamline the pre-, during- and post-sale processes, and they can be implemented using compliance and documentation practices.
Pre-Sale: Get your House in Order
It’s just as important to prepare for the sale of a dealership as it is to find a buyer. If you prepare thoroughly prior to putting the business on the market, your chances of more quickly landing a desirable offer drastically improve.
First, prepare an information packet for potential buyers. The best way to start that process is to create a checklist of the required documents that buyers and their agents will likely request. It should include categories such as four years of financial statements, human resources documentation (health plan, compliance documents, employee handbook, etc.), inventory, photos of fixed assets, environmental standards, manufacturing and vendor agreements, service department records and much more. MD Johnson Inc. created a 55-point checklist of required pre-sale documents, which you can download here.
One of the biggest seller mistakes is a failure to communicate with key management about plans to sell the dealership. Your senior executives need to know what you’re doing from the very start. Otherwise, they will see you in meetings with business people they are unfamiliar with, and then rumors start swirling. Before any speculation spreads throughout the dealership or on social media channels, inform key management of your intentions to sell. This can be done face-to-face, but should also be supported through documentation and non-disclosure agreements.
To make the pre-sale process more manageable, dealerships should take these steps:
- Gather and organize compliance documents according to the recommended checklist, digitize all paper forms of the documents, and store them on a protected, secure server. Use an automated compliance system to easily access information on request.
- If workforce compliance is currently done manually, it is likely the dealership’s compliance rates are low or inconsistent, with paperwork and binders scattered about. This is a red flag for potential buyers, as it can possibly cause legal and human resource issues for the seller during the post-sale, onboarding phase.
- To prevent these potential problems, adopt an automated compliance management system (CMS) to bring your workforce “up to code” as soon as possible. Make it a managerial initiative to do so, even as part of the pre-sale communication process with key management members. Compliance systems can be rolled out in days of purchase to 100% of employees. This can help reduce the exposure to claims and losses that can occur on the job, a factor that potential buyers will want to know about. Understanding your risk profile before closing a sale is very important.
During the Sale: Make it Easier for the Due Diligence Process
Buyers require transparency across all aspects of a potential dealership purchase. In fact, sellers have an obligation to disclose to potential buyers—it’s part of the due diligence process. A failure to disclose all key data can result in penalties to the seller, and will certainly take longer for a sale to go through.
While a pro forma statement is routinely used in preparing ‘what if’ scenarios in projecting or estimating the dealership’s financial situation, assuming present trends and assumptions hold true, there are other inquiries that buyers will want addressed as well, such as third party agreements, “for life” programs (such as warranties, lube service, tires and other customer benefits), managerial operations (and inefficiencies), whether or not workforce compliance rates are available and acceptable, and if not, why not and what have been the consequences (such as numerous legal actions, workplace injuries, cost of risk, etc.).
The auto industry is heavily regulated; documentation can be complex. To avoid transparency problems during the due diligence phase, take advantage of automated compliance management reporting capabilities to provide the information likely to be requested, showing dealerships are on top of risk management needs.
One auto dealer, during an acquisition of a dealership in another state, found automated compliance worked in its favor as a buyer. The seller deployed a workforce compliance management program during the sales phase, allowing the buyer to review the compliance and risk management statistics early in the acquisition process. This helped the buyer to determine reporting capabilities and gaps in operating effectiveness.
Post Sale: Smooth Transition and Onboarding
The industry standard for human resources management staffing across U.S. automotive dealerships is one HR person per 100 employees. However, given that turnover rates can run as high as 200% in a year, a single HR person is normally handling a double load — and when that happens, workforce compliance management can fall below acceptable rates.
Dealerships cannot afford to allow operations and administration to be overwhelmed by growth strategies. That’s why when acquiring a new property, buyers look for the types of systems in place that make onboarding — and termination — easier and often without having to add more human resources staffing to support the transition, which can be costly.
Compliance management can also be used to introduce workforce transitions to the new company culture and expectations of ethics, “Tone at the Top”. Using a compliance system for onboarding can also reduce turnover rates during a critical time of transition when it may be necessary to stabilize headcount.
One auto group makes it part of their acquisition process to onboard all of their new employees via their compliance management system. They established a rule that an employee does not step onto the sales/dealership floor without completing their compliance and training requirements.
When another dealership developed plans to expand into other states through acquisitions, the company first implemented a workforce compliance management system in order to centrally manage compliance and onboarding processes. Prior to automation, it cost the company $45,000 at each location to manage workforce compliance. This was 50% of the salary of a manager, meaning the manager could only complete half the job he or she was hired to do.
After switching to an automated system, this dealership was able to change the ratio of one HR person per 500 employees, thanks to a compliance management system. This is a savings of up to $75,000 per HR employee, or approximately $300,000 per year at industry standard salaries. In addition, they have been able to successfully avoid and dispute the many legal and unemployment claims that often occur during acquisition transitions, and lower their insurance costs.
The ROI of Compliance in the Buy/Sell Process
The buying and selling of auto dealerships is a complicated process. However, compliance management systems can streamline complexities as well as the enormous amount of document requirements required for disclosure. These systems can also help avoid process bottlenecks, saving dealerships costly hours of manual administrative paperwork.
Even with a constant focus of managing people, processes and systems, auto dealerships can merge and acquire while improving the efficiency and effectiveness of the entire organization and workforce- something that benefits both buyers and sellers.
Complí, based in Portland, Ore. provides workforce compliance management tools to organize compliance activities, view the status of initiatives and confidently illustrate the efficacy of obligations in your organization. info@compli.com 800-481-8309
