Buy / Sell 101. Kevin J. Carnes. Principal, CPA, MST. Presented by:

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1 Buy / Sell 101 Presented by: Kevin J. Carnes Principal, CPA, MST

2 Buy / Sell 101 Determining the price of a Dealership. Items and negotiation issues when preparing the purchase and sales agreement. Issues and items that arise during the closing.

3 Buy / Sell 101: Basic Concepts Stock versus Asset Deal In a stock deal the purchaser steps into the position of the seller. The purchaser takes on the assets and liabilities at the seller s current values. The company being sold continues to exist with new owners. Typically this is good for the seller but not beneficial to the purchaser In an asset deal, the assets are purchased by a new or different company

4 Buy / Sell 101: Basic Concepts Stock versus Asset Deal (continued) The new company only purchases assets and liabilities that are agreed upon. Letter of Intent (non-binding letter outlining the transaction) The more detailed on how items will be valued and what is included the better so the P&S can be completed in more of a timely manner. Blue Sky (Goodwill) - The value in excess of the value of the hard assets being purchased.

5 Buy / Sell 101: Determining Price The value of a dealership is equal to what someone is willing to pay. Typically the value of a store is based upon the value of the assets being purchased plus an amount of Blue Sky or Goodwill Blue Sky is usually calculated by using previous normalized earnings and applying a multiple. The Haig Report, The Kerrigan Report comes out quarterly and give mulitiples by franchise

6 Buy / Sell 101: Determining Price Purchaser also can take into account what they expect to make in order to determine the price. Normalized Earnings are earnings adjusted for what would be considered non-operating expenses and income Family on the payroll Excess compensation Reduces or excess rent Personal expenses Do Not Lie about Earnings!!!!

Buy / Sell 101: Determining Price Factors that affect price Capital Improvement requirements Current lease situations Current performance (may not be making money but

7 Buy / Sell 101: Determining Price Factors that affect price Capital Improvement requirements Current lease situations Current performance (may not be making money but doesn t mean not have a value) Contingent Liabilities (free inspections or free tires program etc) Due diligence should be performed to ensure the numbers are accurate.

8 Buy / Sell 101: The Purchase and Sales Agreement Used at the closing to determine the value of the assets being purchased. Value of New Inventory What year vehicles are being purchased Who gets benefit for the Holdback Who receives the floorplan assistance Who receives the advertising assistance Who receives the PDI monies What is the adjustment for mileage How to value internal work done on vehicles Value of Used Inventory How is the value going to be determined

9 Buy / Sell 101: The Purchase and Sales Agreement Value of parts inventory How to value obsolete inventory Who is paying for the inventory Value of Demonstrator vehicles What is the adjustment for mileage What is the value of Fixed assets and what is included as Fixed assets? How are deals with customer deposits going to be handled? How are rental vehicles going to be valued? What leases are being assumed?

10 Buy / Sell 101: Issues Arise at Closing Floorplan payoff Make sure the payoff being done by the floorplan source is for the vehicles that you are purchasing In-transit vehicles (The floorplan source does not typically payoff the vehicle if it is in-transit so it s necessary to determine how it is to be handled. In-Transit Vehicles Who is going to be paid the holdback, advertising, and floorplan assistance how to handle Factory Monies Who is going to receive them and who deserves them (i.e. PDI)

11 Buy / Sell 101: Issues Arise at Closing Prepaid Expenses What amounts are to be paid by the purchaser (i.e. rent, real estate taxes) Service contracts Accrued Vacation If paid by seller, then no vacation earned by employees could cause morale issue.

12 Contact Us Kevin J. Carnes Principal CPA, MST Phone:

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