| Closing a store requires considerable effort and | | | | considered.Leasehold ImprovementsThe value of |
| attention and the items listed below, in no particular | | | | Leasehold Improvements is generally lost in the |
| order, are minimal considerations when terminating a | | | | termination process.VehiclesWhile accomplishing a new |
| franchise and closing a dealership operation.THIS | | | | vehicle inventory valuation is a relatively, routine matter, |
| CHECKLIST IS NOT "ALL INCLUSIVE". YOU | | | | it is also time consuming; consequently, in order for a |
| SHOULD CONSULT WITH YOUR ATTORNEY AND | | | | dealer to realize full value, or each vehicle, at time of |
| ACCOUNTANT AND THIS LIST SHOULD BE | | | | transfer, a checklist must be compiled and maintained. |
| CONSIDERED AS AN ADDITIONAL AID FOR YOU | | | | There are certain additions to, and subtractions from, |
| TO USE TO BUILD UPON WHEN YOU CONFER | | | | the invoice price that must be made.The difference in |
| WITH THEM.Basic Preparation1. Officers, Directors and | | | | cash to be paid by purchaser's flooring entity to the |
| ShareholdersBe certain to hold both directors and | | | | dealer's flooring institution can be considerable, |
| shareholders meetings and to obtain resolutions from | | | | especially with respect to domestic lines, where |
| each entity, authorizing the dealer to liquidate the | | | | holdback monies routinely average between $400 and |
| dealership, or a substantial portion of the dealership's | | | | $600 per unit, or more.A dealer needs to be aware of |
| assets.Determine whether or not the board and | | | | this figure, early on in order to provide for the |
| shareholders may authorize you a termination bonus | | | | contingency during negotiations.Various states have |
| and prepay your for your services in "winding down | | | | laws more liberal than the factory's Sales and Service |
| the business". Consult with your accountant and | | | | Agreements and the specific laws of the terminating |
| attorney to determine what would be a reasonable | | | | dealer's jurisdiction should be review. For example, |
| amount of compensation in the event a company | | | | Maine requires that the factory repurchase terminating |
| creditor challenges the transaction.Determine if it is | | | | dealers' entire new vehicle inventory, regardless of |
| reasonable for officers to buy themselves and their | | | | model year. Some states require the factory |
| spouse vehicles. Pay "Net" "Net", as that would be the | | | | repurchase only current model year vehicles and |
| sales price if the vehicle were returned to the factory | | | | others current plus one year carry-over.In MSO states, |
| or sold to a purchaser of the business.The officers | | | | the dealer should control all vehicle keys and MSOs - if |
| should open a new bank account, at a different bank, | | | | the lender does not already have them.Prepare to |
| and: (a) use a PO Box, or Private Mail Service as a | | | | liquidate used vehicles and any dealership vehicles |
| mailing address; and (b) use a different check color in | | | | such as parts trucks, courtesy vans, demonstrators |
| order to easily determine pre and post closing checks | | | | and snow plows. It is generally easier to obtain a good |
| written.Authorize payment to and pre-pay the | | | | price for them by not letting anyone "cherry pick". |
| company's attorney and accountant with a retainer. | | | | Several wholesales should bid them as a "group".Make |
| Their services will be needed to properly close the | | | | list of carryovers and if the factory will not repurchase |
| business and the company might not be able to pay | | | | them have the wholesalers bid them separately and |
| them later.Authorize pre-payment of whatever | | | | also shop them with other dealers.Dealer plates must |
| services or supplies the company will need to be | | | | be surrendered and accounted for when the dealer |
| serviced during the wind-down period. For example, | | | | license is terminated.13. Appraisals and AuctionsThere |
| property and personal insurance, real property taxes (if | | | | are a number of competent, recognized appraisers, |
| the property is not owned by a third party), rent, utilities | | | | our firm could recommend. In order to maximize the |
| and such.2. The Facility and InsuranceA one-sheet | | | | dollar value of an appraisal or auction, the dealer should |
| summary of the lease should be attached to the | | | | contact several firms, determine how they operate, |
| original, in order to facilitate matters. The summary | | | | what records will be required, the method for valuing. |
| should include such items as: the dates of the base | | | | After obtaining such information, the dealer should |
| term; the base rent; the current rent; the dates of any | | | | know the precise form and schedules necessary in |
| option periods, together with notations regarding rent | | | | order to maximize the appraisal or sale of the fixed |
| increases; the facility ownership; the lessee and lessor; | | | | assets. In addition, by assigning an employee to |
| a notation as to whether or not the factory has point, | | | | thoroughly prepare the assets and schedules, the |
| or site protection; the rent as an equivalent to the dollar | | | | dealer will better understand the value of the assets at |
| value per new unit sold; and, a notation as to | | | | the premises.Perhaps the greatest problems, with |
| WHETHER OR NOT THE LEASE IS ASSIGNABLE | | | | respect to appraisals and auctions, are: (1) neither party |
| and under what conditions.Other considerations | | | | takes the time to understand the methods and |
| regarding the facility lease include violations of the | | | | reasoning used by the appraisal/auction company; and |
| ADA, hazardous materials (underground gas tanks, or | | | | (2) the dealer almost never adequately prepares the |
| underground oil disposal tanks) being located on the | | | | assets and schedules. We invariably find that all of the |
| property.Owned FacilitiesWith respect to receiving | | | | dealership's assets do not appear on schedules, either |
| "factory termination assistance", some Sales and | | | | because they have been fully depreciated, or because |
| Service Agreements, General Motors for example, | | | | of an error.14. Contracts for ServicesService |
| make a distinction between "owner occupied" and | | | | maintenance contracts and personal service contracts |
| "leased" dealership facilities. Be sure to read your Sales | | | | should be reviewed for personal guarantees, term and |
| and Service Agreement in order to understand and be | | | | assignability. An oversight could mean that personal |
| able to capitalize on the distinctions.Leased FacilitiesIf | | | | liability, for performance, would remain with the selling |
| the selling dealer's rent factor prior to the sale of the | | | | dealer. Service maintenance contracts should be |
| dealership is within factory guidelines the factory should | | | | scheduled, with the detail indicating the amount of each |
| make the dealer's lease payments for the period | | | | payment, duration of agreement, service to be |
| specified in the Service and Sales Agreement. (See, | | | | rendered, and any personal liability. Any contracts that |
| however, the EPA section.)Check with your insurance | | | | can be cancelled should be calendared for |
| agent to determine the requirements for insuring an | | | | cancellation.15. Contingent Liability and ReservesThe |
| empty building.Other InsuranceIn addition to facility | | | | dealer should know the amount of all outstanding retail |
| insurance the dealer will need a "tail" or rider on his or | | | | paper, which has been unconditionally guaranteed by |
| her garage keepers insurance. Most insurance today is | | | | the dealership, or the dealer. The dealer should know |
| "claims made" versus "occurrence".In actual practice, | | | | which the dealership's reserve account will be subject |
| most cases that are settled are settled within the | | | | to charge backs, for early payoffs and the amount, if |
| insurance policy limits and the insurance company will | | | | any, of recourse against the dealer and the |
| have paid for both the defense and the | | | | dealership.A spreadsheet of the outstanding contracts |
| settlement.With respect to Medical Insurance, arrange | | | | should be compiled, detailing, in addition to collateral |
| for COBRA all employees of the company. Again, | | | | description, remaining term and delinquency status, and |
| officers and directors may be able to include medical | | | | credit grade, such as A, B, or C, or whatever system |
| insurance payments as part of their wind-down | | | | the finance company uses. The type of recourse, |
| compensation.3. UCC, Mechanic's Lien and Title | | | | average monthly reserve charge-backs and the |
| SearchesMost dealers are not cognizant of all existing | | | | current reserve balance should also be included.Shortly |
| liens on dealership's assets.In order to accurately | | | | after informing the financing institutions of the dealer's |
| estimate the selling dealer's anticipated net proceeds, | | | | intent to close the dealership, the lenders should again |
| all of these liens will have to be discovered, preferably, | | | | be approached, regarding the availability of any |
| prior to negotiations.Possession of title reports and | | | | "walk-away" programs. Furthermore, in the event the |
| UCC-1 reports will give the dealer adequate time to | | | | dealership has been operating with reduced reserve |
| address the issues and to have readily available | | | | retention, the amount required to bring the reserve(s) |
| answers, if and when a prospective purchaser raises | | | | to standard, upon cessation of retail operations, should |
| the issue.4. Taxes Due and AnticipatedThe dealership's | | | | be determined. On occasion, this amount has proved |
| comptroller or accountant, should prepare a sheet of all | | | | to be significant.Eventually, when confidentiality is no |
| taxes currently owed by the dealership and all | | | | longer an issue, the dealer should discuss with the |
| anticipated taxes. The list should identify the amount, to | | | | lender, the handling of future repossessions, extensions, |
| who owed and the reason. In certain states unpaid | | | | renewals and other maintenance functions. If the prior |
| taxes have a "superlien" status and if unpaid the selling | | | | dealer-lender relationship was good, the dealer will |
| dealer's assets can and will be attached to recover | | | | discover that an incredible amount of help available |
| unpaid taxes due by the selling dealership. This | | | | from a cooperative finance company.Lastly, if the |
| attachment can occur months after the dealership has | | | | dealer discovers a large contingency, a certain degree |
| closed.As a general rule, anyone authorized to sign on | | | | of assistance may be negotiated with the buyer.16. |
| the checking account can be held personally liable for | | | | Accounts Receivable and CashCashWhile apparently |
| at least ½ of the payroll withholding tax, as well | | | | obvious, dealership cash must be considered. Generally |
| as 100% of all of the sales taxes due. In addition, in | | | | a new checking account should be opened at a |
| some instances dealers have been held personally | | | | financial institution that is not affiliated with the dealer's |
| liable for monies collected from customers that should | | | | current business. Also, if possible, a locally owned bank |
| have been treated as "trust" monies, such as: | | | | should be used, versus a national bank. The dealer |
| customer trade payoffs, customer credit and life | | | | should consider reducing the number of signatories on |
| insurance premiums, and customer warranty and | | | | the checking account(s) to two, one of which is the |
| service contract premiums.5. Notes and Accounts | | | | dealer and, effective the day of the close, the number |
| Receivable From OthersThe "Notes and Accounts | | | | of signatories should be reduced to the dealer principal |
| Receivable - Other" account is usually a "catch-all" | | | | only.Factory ReceivablesFrom the moment a decision |
| account on the dealership statement. For purposes of | | | | to close the store is reached, factory receivables |
| a dealership sale, this account should be purified (1) in | | | | should receive concentrated attention. The very instant |
| order to apprise the dealer of any extra funds, which | | | | an awareness of the pending closing reaches the |
| may be available for final sales and property taxes | | | | factory, the payments cease.Try to resolve all problem |
| and (2) to make both the dealer and accountant | | | | receivables, such as warranty disputes, well before the |
| aware of any "in-house" loans to officers, directors | | | | closing. In any event, assistance from the factory, |
| and employees, which may have to be repaid.6. | | | | following the close of escrow will be essential to |
| Prepaid ExpensesThe prepaid expense account is | | | | process warranty re-submissions and other problems. |
| another "catch-all" account that must be purified. When | | | | Employee ReceivablesEmployee receivables should |
| scheduling the prepaid expense account the | | | | also be thoroughly analyzed during this preliminary |
| comptroller should make a thorough search for all | | | | stage. An immediate policy, of no advances, should be |
| lease and contract deposits. In many instances, service | | | | established.Without causing alarm, employee |
| equipment on lease, vehicles on lease, computers on | | | | receivables should be scheduled and a course of |
| lease, and other leases made to the dealership carry | | | | repayment established. One of the better methods is |
| security deposits, or the last month's payment, or | | | | to prepare a schedule of what each employee owes |
| both.7. Dealership EmployeesAlong with the normal | | | | and, as the final pay periods approach, make certain |
| employer-employee relations, there are two very | | | | the receivables are deducted from the employee's |
| important legal areas that may affect automobile | | | | final checks. Unfortunately, some states do not allow |
| dealers: (a) pension fund liability; and (b) state and | | | | the dealer to set-off debts against wages. Your |
| federal laws regarding closings.In some states the | | | | state's policy/law should be reviewed with your |
| selling dealer could be personally liable for funding | | | | attorney before proceeding to set-off any employee |
| employee pension funds; while in others the dealer | | | | debt.Customer and Vehicle ReceivablesThe selling |
| must give employees advance notice of any closing. | | | | dealer should make certain that vehicle receivables |
| Also, the United States Congress passed legislation | | | | and customer accounts, other than service and parts, |
| regarding "closings". In the instances of "closings", both | | | | are pure. Necessary adjustments and write-offs |
| state and federal laws put a minimum on the number | | | | should be made, with the purpose of arriving at a |
| of persons employed, usually 50 or 100, before the law | | | | receivable figure which realistically depicts the amount |
| applies to the dealer's company. Check the Hart Scott | | | | of cash which can be expected.If the dealership's |
| Rodino Act (HSR) and the WARN Act.With respect to | | | | service and parts policy has been well monitored, |
| wages, some jurisdictions have enacted statutes | | | | these accounts should pay in an orderly manner. In |
| making certain shareholders personally liable for | | | | addition, the dealer should decide whether collections |
| corporate debts owing to laborers and other | | | | should be performed by dealer, and one or more |
| employees. Welfare and pension funds also qualify as | | | | employees, or whether the dealer can sell the |
| wages under New York's statute.The comptroller, or | | | | accounts to a factoring house.17. Leased |
| accountant should prepare a | | | | EquipmentNot all leases can be cancelled. The dealer |
| list of these liabilities, to include any amounts due the | | | | should determine which, if any, of the leases have |
| employees, with respect to accrued vacations, | | | | personal guarantees, and with respect to such leases, |
| withholding taxes, pension and profit sharing plans and | | | | make a concerted effort to negotiate a settlement |
| wages, as of the date of close.Insofar as the actual | | | | with the lessor. That assumes that the corporation is |
| terminations are concerned, if the dealership is "union", | | | | insolvent. If the corporation is solvent, than settlements |
| the dealer should talk to the union's representative in | | | | need to be negotiated with respect to corporate |
| order to be sure that all of the conditions of the union | | | | leases.18. EPA InspectionIf the real property is owned |
| contract are met.8. Long Term DebtAll long-term debt | | | | by the closing dealer, it is important for the dealer to |
| should be itemized and a method of repayment | | | | determine where and what the problems are likely to |
| determined. Interest should be computed. When past | | | | be. If underground gas or oil storage tanks have ever |
| due interest and past due payments are added to the | | | | been located on the dealership real property, the |
| loan balance, the loan pay-offs are generally higher | | | | dealer should, if not already available, contact a private |
| than anticipated.The comptroller should prepare a list of | | | | inspection agency and obtain a certificate of clearance, |
| these debts, to include the amount owed including | | | | or compliance, with respect to it.Be aware, no |
| interest, to who owed, purpose of debt, maturity, terms | | | | agreements between the parties can modify, or |
| and security given. In addition, after the list is completed, | | | | redistribute their respective liabilities, with respect to |
| the comptroller should keep a running total, daily, | | | | state and federal laws.19. Expenses of |
| through close of escrow.9. Other Notes PayableAs | | | | TransactionThere are certain extraordinary expenses, |
| with long-term debt, other notes payable should be | | | | such as real estate appraisal fees, consultant fees, |
| listed by amount including interest to date of close, to | | | | attorney and accounting fees, which are incidental to |
| whom owed, purpose of note, maturity, terms and | | | | the preparing a dealership for closing. These expenses |
| security given; and arrangements should be made to | | | | will be paid both from the dealership general account |
| retire the debt.10. The Financial StatementsThe retail | | | | and directly from the closing dealer's personal account. |
| automobile business is one of the few businesses | | | | The dealer should alert the bookkeeper to maintain a |
| requiring a complete closing of all books and records, | | | | separate journal, in which to record these expenses, in |
| promptly, at the end of each and every month. | | | | order that the accountants may readily determine the |
| Factories and finance companies require reporting on | | | | costs of sale and categories of expenditures, for |
| factory originated, or approved forms.In preparing the | | | | income tax purposes, both personal and |
| store for closing, a reconciliation statement may be | | | | business.Closing DateAbsent exigent circumstances, |
| used, explaining categories such as "other income & | | | | the dealer should estimate the amount of time |
| expense", warranty, finance and insurance income not | | | | necessary to prepare the store for closing, usually |
| shown on the statement, along with extraordinary | | | | approximately thirty days. If possible, the closing should |
| items.You will need a final financial statement for tax | | | | be on a payday.The Comptroller's ResponsibilitiesThe |
| purposes.11. Storage of RecordsDealerships amass a | | | | Dealer's comptroller should prepare, or be responsible |
| great deal of paperwork, the safe, accessible, storage | | | | for the preparation of, the following items and |
| of which will present a necessary problem to the | | | | documents, for transfer:The Books & Records;All |
| selling dealer. No dealership record will be as important | | | | Purchase Orders and Deposits;The Franchise |
| as it is on the day it cannot be found. Former dealers | | | | Termination Letter and the Factory's, or Distributor's |
| have related stories of attempting to retrieve | | | | Acceptance of the Buyer's Resignation;The Accounts |
| documents from mini-storage facilities, in both rain and | | | | Receivable List;Prepaid Expenses;Preparing a Leased |
| snow.The appropriate time period should be | | | | Equipment Inventory;Securing Old Credit card plates |
| determined, only after the dealer's accountant and | | | | and Machines;The Parts and Accessories Return, |
| attorney have considered and advised the dealer with | | | | Vehicle Return, and Rent Assistance Demand |
| respect to statute of limitations problems and other | | | | Letters;The Transfer and/or cancellation of various: |
| document retention regulations, peculiar to the political | | | | Telephone Numbers; Post Office Boxes;The insurance |
| area in which dealership is located.12. In-House Service | | | | arrangements: life, garage keeper's tail, real and |
| ContractsIf the dealer has sold any "in-house service | | | | personal property, health, etc.The Dealer's |
| contracts", the selling dealer will not want former | | | | ResponsibilitiesThe Dealer should prepare, or be |
| customers calling at his or her home for repairs, or | | | | responsible for reviewing and supervising all of the |
| complaints; therefore, a system of service, along the | | | | items in the checklist and for the preparation of the |
| following lines, should be negotiated with a dealer | | | | following items:Decide on the employees that are |
| located in close proximity to the closing store.13. The | | | | required to stay in order to complete the closing of the |
| Hard AssetsParts and AccessoriesEach factory has | | | | store.Check for sold orders decide whether to deliver, |
| its own definition of "returnable" parts and returnable | | | | cancel, or refer to another dealer.Cancel company |
| accessories. Most also include a discount for packing | | | | credit cards, including any phone credit cards and any |
| and shipping.Just prior to closing, a computer printout | | | | mobile phones - except your own.Secure telephone |
| ought to be obtained listing all parts and accessories, | | | | service. Set a Voice Mail message regarding a |
| their purchase date and cost in invoice.Parts and | | | | dealership referral.DETERMINE THE FACTORY'S |
| Accessories need to be segregated into "returnable" | | | | OBLIGATIONS WITH RESPECT TO ITS RIGHTS TO |
| and "non-returnable" categories. Returnable parts and | | | | LEASE AND PURCHASE. BE SURE TO MAKE |
| accessories need to be inventoried and packaged | | | | CLAIMS AND REQUESTS FOR ASSISTANCE |
| according to the factory's specificationsNon-returnable | | | | WITHIN THE TIME PERIOD SPECIFIED IN THE |
| items need to be marketed to other dealers or parts | | | | SALES AND SERVICE AGREEMENT.If necessary, |
| houses such as "Napa". Note: Some "non-returnable" | | | | talk to a Realtor and list the facility on the market |
| parts may in fact be returnable to the supplier from | | | | (lease or sale).Find out where credit card monies are |
| who it was purchased, such as Delco, MotorCraft, | | | | deposited and move the account if it is in the same |
| Mopar, Napa, etc.Do not mark on or damage original | | | | bank where the company's general account |
| packages when inventorying or packing as some | | | | resides.Close out, or transfer to another dealer all |
| factories will not classify items in marked packages as | | | | active service ROs. If possible, negotiate a referral |
| "returnable".Be sure to account for aftermarket items | | | | fee.Create a press release for store closing.Cancel all |
| such as Gas, Oil & Grease, Nuts, Bolts, Supplies, Work | | | | new vehicle orders that are not scheduled, do not |
| in Process and Repair Order (Need to collect A/Rs), | | | | order any new cars.Close out all service ROs so that |
| Signs, Tools, Miscellaneous Equipment & | | | | work is completed by date of close. Do not accept |
| Supplies.Furniture, Fixtures and EquipmentThe hard | | | | any work that can't be completed by store shutdown |
| assets fall into two categories: (a) Those repurchased | | | | date.As always, when closing a dealership, you should |
| by the factory, such as special tools, parts equipment, | | | | always consult with a qualified attorney and |
| signs, some computer systems, etc.; and those not | | | | accountant.For additional information on this and other |
| repurchased by the factory, such as desks, chairs, | | | | automobile dealership subject matters, go to: Pico has |
| etc.Repurchased and non-repurchased items should | | | | a Doctorate of Jurisprudence and is a vice president |
| be segregated and an inventory / auction service | | | | of Automotive Advisors. He has completed over 1,000 |
| contacted to bid the auction on the non-repurchased | | | | dealership transactions, and published the first books |
| items. When considering the auction, terms such as | | | | copyrighted in the Library of Congress on Buying and |
| advertising time, location, minimum bids, guaranteed | | | | Selling Automobile dealerships. |
| minimums from the auctioneer, and so forth, must be | | | | |