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Powersports Business • April 2024 • 13

According to Bernhard , dealers should also look closely at parts , accessories and general merchandise . “ I ' m passionate about this part of the dealership because it ’ s typically overlooked and never up to date ,” she adds . “ There ’ s a lot of money sitting in parts . But with parts becoming obsolete faster than before , buyers are becoming more conservative when it comes to valuing parts you have in inventory . Sellers should do an annual physical inventory and take advantage of any tax write-offs for obsolescence .”

Company vehicles and trailers also come into play . “ Often , the vehicles and trailers sit on a depreciation schedule , but we negotiate those items separately and make sure no stone is left unturned ,” Bernhard says . And major unit inventory must also be considered . “ Most new units are sitting on a buyer ’ s new floor plan . Anything that ' s owned , whether it ’ s new or pre-owned , has equity that can be negotiated . And then you have real estate , which can be the biggest part of the transaction and is typically sold at appraised value . All those things add up when looking at the seller ’ s final walkaway number .”

In our experience , dealers also don ’ t want to overlook cash and accounts receivable . In some industries , a buyer requires a certain amount of operating capital as part of an asset sale . In other industries , the seller can get credit for all accounts receivable and cash . In the powersports industry , Chaconas says the seller traditionally keeps the cash and cash equivalents and will pay all the accounts payable at closing . That ’ s because there ’ s usually not a lot of A / R in these types of businesses . “ When it comes to parts , it ’ s very important to do a physical inventory every year to keep everybody honest ,” Chaconas adds . “ You want to keep your inventory clean because we ' re seeing more negotiation than we used to on aging and non-moving obsolescence parts .”

When looking at other assets on a dealer ’ s books , I have found that the book value of the equipment isn ' t necessarily its market value . That ' s why inventorying all areas of your business is critical from time to time .

INTERNAL TRANSFER When looking at a succession plan , some dealers may be leaning toward an internal transfer of their dealership rather than selling to a third-party . This can make sense if dealers want to stay involved in the business they worked hard to build and if they have a very strong general manager or family member capable of assuming the reins of the dealership . Transferring internally can ’ t be done with a handshake , however . It requires a formal plan just like getting ready to take a dealership to market . Dealers also want to look very carefully at their successor ’ s strengths and weaknesses .

For instance , a potential successor may be a great salesperson , but not good at reading financial statements and those skills gaps need to be filled well before the transfer . Bernhard says one thing dealers often overlook in an internal sale is how the marketplace views the successor , especially if they are not members of the owner ’ s family .

“ Even if he or she is an excellent general manager , they may not be approved by the manufacturer due to their credit history , their background checks or some other blips they ’ ve had during their career .” Bernhard notes . “ Full transparency is important between all parties involved . Confidentiality is important and while it may seem exciting to announce a sale , it can cause unrest with employees . An internal sale should be treated like any other sale and kept quiet until the deal is close to being complete .”

Dealers should also look carefully at the financial planning goals of the seller versus the buyer . For example , in an internal transition , the seller wants to maximize the proceeds from the dealership sale , which , according to Matel , is fair since it ’ s their life ' s work . “ They want to take on less risk as they ' re stepping away from day-to-day responsibilities . They also want to ensure that they get paid if the dealership is sold on a note and there are installment payments in the future .” Over time , Matel says sellers rightfully want to see the personal guarantees removed . She says good advisors will take the time to learn about both the buyer ’ s goals and the seller ’ s goals to ensure they have enough in common and that the dealership cash flows can support that transaction .

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Assuming everything is in alignment , the next step is to put together a buy-sell plan for the parties involved . “ Typically , this is where you see an attorney step in ,” Matel says , adding that the plan will also include a shareholder agreement and a share purchase agreement . “ Things like the employment agreement for the successor get addressed in those documents , as well as death and disability provisions , the purchase price of any shares transferred to the successor , plus termination of employment and even the life insurance needs of the surviving partner and spouses who may be impacted by the transaction ,” she says .

The process for an internal transition is very different from a third-party sale . In a third-party sale , there is typically a nondisclosure agreement so financial documents can be shared with potential buyers , according to Matel . If there is an offer , dealers typically get a letter of intent and then the transaction is typically finalized with an asset purchase agreement .

In Part 2 , we ’ ll discuss the need for a formal written plan , having an advisory team with industry experience and common mistakes to avoid when preparing for sale .

Brad Stanek , CFP is an Executive Director and Financial Advisor with of The Stanek-Haack Group at Morgan Stanley in Chicago , IL brad . stanek @ ms . com . Paulina Matel , CFP is a Financial Advisor with The Stanek-Haack Group at Morgan Stanley in Chicago , IL Paulina . matel @ ms . com .

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