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