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