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You’ve Bought a Car Dealership? Now What?

You’ve Bought a Car Dealership? Now What?

The entry of a new set of buyers has helped fuel a trend. 

In recent years, auto dealerships have seen a wave of new-investor interest.

High-profile buyers such as Warren Buffett and Bill Gates have joined a host of family offices and private equity investors to take part in an industry that proved its merit by emerging relatively unscathed from the Great Recession.

The entry of a new set of buyers, combined with changing sales dynamics enabled by the Internet and an aging generation of dealership owners, has fueled a consolidation trend.

Many buyers are faced with the challenge of incorporating a new retail store into an existing dealership organization. It is critical buyers of new stores establish a clear integration strategy that contemplates the “hard” issues (accounting systems and infrastructure) and “soft” issues (human resources, personnel and culture) inherent in the business.

The integration plan should be designed as early as the signing of the letter of intent and implemented as soon as the keys are handed over. Moreover, buyers who are adding to an existing dealership group should be keenly focused on promoting a consistent approach across the entire group.

Hard Issues: Accounting and Infrastructure

Establishing strong accounting policies and procedures groupwide is critical to a smooth integration process. From day one, the new store should be converted to the group’s accounting policies.

Some groups have a standard accounting policy and procedures manual, so the documented policies and procedures just need to be implemented. For those groups without such policies and procedures, establishing them should be a priority. Leadership should train the new staff on this manual and apply the pre-existing policies from the start so that expectations are clear to all.

Each dealership has financial accounting and reporting requirements, which are set, in turn, by the manufacturers and the needs of the management team. These requirements should be considered for the new store and aligned with the group’s existing infrastructure, if possible.

The top priorities among these include:

  • Converting the new store’s dealership-management system to the group’s preferred vendor from day one.
  • Implementing the group’s general ledger standard chart of accounts.
  • Setting up account schedules consistent with the group’s standard. For example, all accounts should be set up as either detail forward or balance forward.
  • Converting the new store to the group’s financial analysis and reporting formats.
  • Implementing key internal controls, especially over electronic fund transfers (EFT), general journal entries, cash disbursements and cash receipts.
  • Converting the daily operating control (DOC) system in the new store to match the group’s existing platform.
  • Analyzing and recording the purchase accounting for the new store, including a detailed description of all opening entries with supporting documentation.
  • Converting to the group’s standard reconciling formats.
  • Integrating the factory statement reporting to align with the group’s standard.
  • Converting the new store’s documents to the group’s standard versions, such as vehicle purchase agreements, repair orders and general journal entry vouchers.

Outside of the accounting systems, a number of other, related items should be prioritized, as follows:

  • Setting up computer system access appropriately for different levels of employees.
  • Implementing adequate insurance coverage for new and used cars and trucks and parts inventories in addition to buildings and equipment.
  • Implementing the group’s approved vendor list so that the new location can benefit from the group’s buying power. (Examples, office supplies, advertising and other service providers.)
  • Following up on any lingering issues from the due-diligence process, such as missing units or estimated liabilities for customer retention plans. (Examples: free oil changes, tires for life and warranties on service work performed.)

Personnel and Culture Issues

Communication here is critical. Management should think proactively about the culture; the tone for the integration is set at the top. The store’s leadership must be clear about – and buy into – the new owner’s vision.

Management should select an integration team and clearly define the team’s capacity to make decisions for the integration process. This team can help to ensure the integration process is fast and smooth and the integration does not distract from operating the dealership.

This team often is led by a general manager from an existing store. Other members of the integration team should include the new group’s chief financial officer (or controller), a human-resources representative and a fixed-operations director.

Staff at the new store should have a clear understanding of who is on the integration team, their roles and how they will help integrate the newly purchased store into the existing group. 

Decisions about retention and evaluation of existing staff members at the new store should be made quickly. Because most acquisitions are asset purchases, the store’s employees will need to apply for a new position with the new company and should go through the group’s standard new hire process – including filling out a job application and being interviewed.

Once the new store’s team is chosen, leadership should clearly communicate that new employees quickly will be converted to the group’s employee manual and their compensation will align with the group’s standard approach. If this process is slow, negative culture consequences can get in the way of a successful operation.

Having a thorough integration process enables efficiencies across the dealership group. In addition, it will help the integration team better identify and address issues.

CPA Ed Reinhard is a partner at Crowe Horwath, an accounting and consulting firm. He can be reached at 614-365-2202 and [email protected].

TAGS: Retail
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