In order to make informed decisions about the future direction of your business, you need to know the value of your dealership. You need to look at market conditions, franchise desirability, profitability, and the facility itself.
Ask yourself these questions to determine the value of your business:
- Where is your dealership located? Different markets affect the value of a dealership.
- Are you paying fair market rent? How does the real estate impact the value of your dealership?
- Is your company accurately reflected in your financial statements? If not, are there issues that will arise during an audit or in your buy/sell process?
- How many new vehicles do you sell each year?
- How many used vehicles do you sell each year?
- What is your earnings continuity? What did you net this year versus the previous year?
- How is your service utilization? Does the dealership have enough service bays to capitalize on the potential earnings? Could it be better?
- What is your competitive environment? For instance, how many vehicles are in operation and is the dealership in a single-point market? How big is that market?
- Do you have any environmental concerns that might impact the value of your dealership?
- Does your facility comply with manufacturer’s image requirements? If not, how does it impact the value?
- How is your management team? A great team adds value to the dealership.
- What are your marketing costs? Your competition and your required advertising budget will influence your potential profit and also impacts the goodwill value.
- What is the future potential of the dealership? Buyers pay for potential, and we have never sold a dealership to a buyer that did not think they could do better than the person selling the dealership.
What are the three common methods of determining a dealership value?
Asset-based approach.
This approach determines the dealership’s net worth by taking the value of all of its assets and subtracting the value of all of its liabilities. A liquidation asset-based approach determines the net cash that would be obtained if all assets were sold and the liabilities were paid off.
Earnings value approach.
This approach rests on the notion that a dealership’s value is in its ability to produce income and cash flow for the future. The financial projections of the potential Buyer will determine the value they place on the dealership.
Market value approach.
With this approach, the value of the dealership needs to be established by comparing it to similar dealerships that were sold recently. This is difficult as no two dealerships are alike. Franchises, location, reputation, condition and price of facility all enter into the final sales price.
At Midwest Brokerage, we believe in combining all three of these methods with a detailed questionnaire and an on-site evaluation.
Since 1990, we have been specializing in the Midwest and Central Region of the country. Midwest Brokerage can help you determine the appropriate valuation for your dealership. Call to set up a free consultation today!
