Used car dealership due diligence

A used car dealership under letter of intent has a specific verification profile that other retail businesses do not, built around three things a signed purchase agreement alone will never tell you: whether the inventory you think you are buying is actually there and unencumbered, whether the dealership carries any compliance baggage that could complicate your own registration application, and whether the numbers on the receivable book, if there is one, reflect what customers are actually paying rather than what they originally agreed to pay.

Audit the physical inventory against the paper

Have someone independent of the seller physically count and inspect the units on the lot, then reconcile that count against the floorplan or curtailment statement and any inventory records the seller provides. Discrepancies between what is on the lot and what the financing statement says is there are one of the most common and most consequential findings at this stage, because they directly affect the payout figure the entire deal structure depends on getting right. Confirm vehicle identification numbers against the floorplan schedule individually rather than reconciling only the total unit count, since a unit-level mismatch can hide a vehicle that has already been sold off-book or one that was never actually financed through the facility at all.

Run a lien search on the inventory and equipment

A personal property security search confirms whether units on the lot, and the dealership’s equipment, are actually free of undisclosed security interests beyond the floorplan facility itself. This is standard practice across Canada, though the search process runs through provincial personal property security legislation — your lawyer in the applicable province is the right person to run and interpret it correctly for your specific transaction.

Check the registrar for compliance history

Before you get too far into the transaction, find out whether the dealership has any flagged compliance history with the provincial dealer registrar — OMVIC in Ontario, or the equivalent body elsewhere in the country. A registrar’s concerns about the business’s past practices can affect how smoothly your own registration application moves through the process, even where you had no involvement in whatever generated the history in question.

Test receivables, don’t take the balance at face value

• Actual payment history on buy-here-pay-here accounts, not just the outstanding balance shown on the books
• Delinquency and write-off rates over at least the past couple of years, not just the most recent quarter
• Whether receivable collection depends on the outgoing owner’s personal relationships with individual customers
• Any regulatory or consumer-complaint history tied to financing or collection practices at the dealership

Verify the reconditioning and safety-certification process, not just its existence

Ask to see actual safety-certification records for recently sold and current inventory, and confirm certifications were issued by an authorized inspector under the applicable provincial framework rather than assumed or informally self-certified by the dealership itself. Gaps here represent latent liability that can surface as a customer complaint or a warranty claim well after you take over — exactly the kind of finding worth pricing into the deal, or walking away from, before closing rather than after.

Verify marketplace account terms before you assume they transfer

Read the actual terms of service for whatever online marketplace accounts the dealership relies on for lead generation, rather than assuming a change-of-ownership clause exists just because the seller says it does. Some platforms allow an account to move to a new business owner with proof of the sale; others treat the account as tied permanently to the individual who created it, which means the review history and search ranking you thought you were buying may need to be rebuilt from scratch after closing.

Confirm CRA and employment obligations are current

As with any Ontario asset purchase, confirm there are no outstanding CRA debts that could attach to the assets you are acquiring, and review employment obligations for sales staff, reconditioning staff and any office personnel, since how those obligations carry forward can differ depending on whether the deal is structured as an asset or a share purchase. A dealership with a long-tenured sales team is often a genuine asset, but only once you understand what you are agreeing to inherit alongside them, including any accrued vacation pay or termination entitlements that transfer with continuing employees.

The findings that most often kill a deal

An inventory count that materially disagrees with the floorplan payout figure, a registrar flag on the business’s compliance history, or receivables that turn out to be substantially uncollectable once actually tested are the three findings most likely to unwind a used car dealership deal at this stage. Any of them can sometimes be worked through with a revised price or structure — but only once they are actually on the table and both sides know what they are negotiating over.