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It's never a fault time To buy a car dealer, just a fault way to buy one.

In 2009, there have been resellers (both domestic and imported) who have made over half a million dollars in a month, but the majority of the pounds said that 2009 was not the time to buy a reseller.

Remember "If you wait for perfect conditions, you will never get anything done." Ecclesiastes 11: 4. It is not the "conditions" that count; It's your "analysis". In fact, most car dealerships that were closed in 2009 were bought or established under what the Pundits now describe as "the good times". The times when owners and experts complained were "right times" for buying and building.

Case in Case: In 2008, Automotive News ran a frontpage story on a man who built a Toyota dealer on the highway, opposite the Oakland Coliseum - a $ 35 million five-storey store and a four-story glass showroom. The experts proclaimed about the dealer "... has a broader vision of the relationship between real estate and car dealers than you would normally find."

On February 24, 2009, the Oakland Tribune reported: "New Toyota Dealer in Oakland closes". In this article, the reseller's customer relationship manager explained: "I'm kind of in a state of shock because we thought we had such a bright and opportunistic future here, and with that it just leaves a blank taste ..."

When analyzing that situation, the dealer would fail.

For a plethora of reasons, not least the store's rental factor, the reseller's success had been contrary to the laws of nature. Analyzing that situation, however, remains for another article. For this article, the learning situation of the learner is: Although the factory approves a transaction, the lenders finance it and the trade publications welcome it. These claims provide no guarantee that a dealer will succeed. That being said, there are many buyers who still believe that these claims mean success.

With the epidemic of trials today, factories and lenders cannot provide business advice because if the reseller did not succeed, it is the factories and lenders that will be awakened. Hence, one must rely on oneself and counselors who are not afraid to oppose the boss.

As a page, be careful not to associate with regular "deal-breakers". Some advisors are eternal naysayers because advisors may not be sued to tell a customer not to do a deal. They are only sued when a client enters a deal that goes sour because it is never the customer's fault. It is the bank, the factory, the auditor, the lawyer, the business advisor (someone other than the customer) who is guilty.

Bottom line is that there are two critical factors in buying a car dealer that will help ensure long-term success: (1) How it was purchased; and (2) how it is handled

Each factor has a history, but it is the two keys. How the dealer is bought and how it is run determines its long-term success or failure. We say "long-term" because car dealers provide enough cash flow that some offers can take five years to settle.

Buying a car dealer

What is the right way to buy car dealerships in bad economic times?

During the "good times", buyers paid premiums for retailers, based on brands, beautiful buildings, nice places, and so on. In fact, in good times or bad, dealers should be valued in the same way: how much the buyer expects to earn after the purchase. In other words, on the expected return (return on investment) - not the brand or building or location.

Deciding what a store can earn after the purchase involves more than math. Regardless of how often "multiple of profit theory" has been shown to be wrong, members and partners from the trade still continue the myth that buying car sales can be so simple.

As a natural consequence of the ROI method, purchase prices will fluctuate as one tends to expect to do more during "good" times, against "bad". Therefore, when one says that the values ​​of blue sky or goodwill fall, their statement has nothing to do with the "value" of the dealer. Furthermore, there is no information in the above statement to help one decide a reasonable value to pay for a reseller. Tumor rules are only guides. Guides are good servants, but bad gentlemen.

If a dealer goes and throws a potential buyer the keys to the building and says, "It's yours. I just want to go out." That act doesn't make the dealer worth more or less. The questions that a buyer has to ask are - (a) "What does it cost to open the doors?" and (b) "What do I think I earn after I own the store?" In other words, "What is my expected return on investment?"

At one time there was a dealer in Colorado who presented an offer for the existing dealer to pay them (buyer) $ 2,000,000 for taking over the stores. The offer was based on forecasts of what the stores would lose while the buyer tried to reverse them. The seller refused and stopped losing several million more before the stores were closed. The dealership properties were eventually sold to a church.

A good checklist for valuing car dealers can be found in the IRS Revenue Ruling 59-60, published by the Internal Revenue Service in 1959. While the ruling (59-60) was intended to outline and review generally the use, methods and factors to be considered when valuing shares in the capital stock of related companies for property tax and gift tax, the methods discussed are applicable for valuing a car dealer and valuation of blue sky in an asset sale by simply equalizing the amount of the share valuation attributable to goodwill / blue sky.

The Five Biggest Mistakes Buyers of Car Dealers Do:

1. Keep in mind that when they check the income they have carried out an important task. The truth is, what the seller made or lost does not matter. A wealth of details and formulas must be applied to determine what the new owner can net. Which rental factor PNUR can the deal afford? Are these figures correlated with the percentage of gross requirements?

2. Overestimate vehicle sales forecasts. The first question is: "What can the new owner sell realistically?" We have seen too many dealers who went down because the buyer could not accurately predict predictable sales. On more than one occasion, we have seen factories and lenders approve dealers where potential buyers considered sales volumes that exceeded the volume of the area's historic sales manager.

3. Famous buyers believe that their names alone can turn dealers or sell cars. We can name more failed, former car dealers who are known, than successful car dealers who are known. We have a photo showing a famous athlete receiving a corporate prize from the US President. He went to the White House and got the prize the year before the factory closed its stores. Either nobody saw it coming or nobody cared about it.

4. Keep in mind that buying a store with a low or no multiple of profit means that they have a bargain. The biggest misconception of a bargain is when the factory assigns a new score. Most people think they have something for nothing. They didn't. However, those who succeed usually succeed because of the time and place - not because of the dealer.

In fact, it takes about a year to build the service department at a new point, but the dealer must capitalize the store as if it was already operating on 8-cylinders. In many cases, a new point suffers through months of losses until it ever becomes a successful deal. These losses are "blue sky". In other cases it is the other owner who makes a trip and in some cases, such as the Englewood deal mentioned above, the score goes away.

The skilled buyer understands that it is a value to buy a dealer who has his number found in the phone book, a loyal service base and repeat customers. The main value is that the day after the store is sold there are people who are ready for service, people who buy parts and customers who come back to the store. It is worth a bonus (blue sky) to the owner, even if the store has lost money.

5. Keep in mind that there is some "magic" formula that makes a store successful. The only formula that will work most of the time is a mix of hard work and knowledge of the retail trade. Each of these words is an operational word: "retail" and "automotive." Knowledge of another company is not enough.

One last piece of advice for rookies. When you make changes in the retail automotive industry act quickly. Erasers are made because people make mistakes. We have not yet met the person who has never used one, but in today's world one can replace the word "rubber" with "backspace" or "delete. When a mistake is made, the trick is to analyze, determine and act quickly. Do not hesitate to correct errors and bad decisions.

That counsel has existed for thousands of years, both in the proverb that one learns as a child (for example, "A stitch in time, saves nine" and "Whoever hesitates is lost", etc.) And in Ecclesiastes 12: 12 "But, my son, be warned - there is no end to opinions that are ready to be expressed. Studying them can continue forever and become very strenuous! "

In conclusion, do not hesitate to buy a car dealer in a bad economy, just buy it properly. Read the articles referred to above and act on them.

"A reseller should be bought for one reason and one reason - to make money. It should not be bought because it is close to home, because the buyer likes the franchise because a partner wants to work for a relative or, because the building is attractive. to make money and to make money it must be bought right. A practical guide to buying and selling car dealers, National Legal Publishing Co. (1989), pp. 2-4.

It was written twenty years ago. That was true then and it is true today.