Why Proper Parts Inventory Valuation is Essential Before Buying a Dealership

  Mike Bachara   |     Jan 30, 2019

Cars parked at a dealership

Whether it is your first time purchasing a dealership or you are looking to grow your current portfolio of automotive properties, knowing what you are getting into before buying a dealership is critical to a strong start at your new location.

Effectively analyzing the dealership in question is one of the most important steps in a successful purchase. 

Assessing the market and your customers in the new location, understanding the current finances and reputation of the property, and determining what assets have remaining life in them and which will need to be replaced at the get-go. Not to mention considering whether you will keep the current staff and how you will implement new processes and procedures.

Another important but often overlooked area that you will want to consider is the parts inventory that you will be buying along with the property.

Inventory is a one of the largest assets at any dealership and you can be sure that your seller has included the value of the remaining inventory in their buy/sell agreement.

As the buyer, it is important that you ensure their valuation is correct. Otherwise you may tie up capital in unmovable, damaged or otherwise invaluable parts.

In most cases, the parts inventory is usually reviewed as part of the transactional process. The problem is that the calculations are often done only a few days before selling, using records that may not be accurate.

People often assume that the auto parts inventory refers only to the dealership’s spare physical parts, used to service customer’s vehicles. That, however, is not the case.

Many parts will be on the books that do not necessarily carry value. This includes:

  • damaged parts;
  • parts being used for work that is currently in progress;
  • parts that need to be returned;
  • obsolete parts;
  • shortage claims;
  • pending credits;
  • and the core value on parts that have deposit values.

These parts will affect the saleable value of the inventory. For example, you could have $150,000 of inventory on the books, but of that, only $120,000 will be saleable, due to the above items.

The key is ensuring that the inventory on hand is current, saleable.

If you are buying, you want to be sure you aren’t paying for parts that don’t hold their value or are obsolete and no longer carry any value at all.

At Pro Count West, we are highly equipped with the knowledge and experience needed to ensure that you optimize your inventory value in a buy/sell agreement. We will help you identify saleable and non-saleable inventory as well as find other opportunities to redeem some of the value on non-saleable, where possible.

To find out how we can help assure that all aspects of your contract are followed carefully and provide accurate inventory valuations, contact us today!

Guide to Optimizing Inventory MGMT

By Mike Bachara

Mike Bachara | Owner of Pro Count West
Mike Bachara | President Pro Count West

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