Valuation Based on Comparable Dealership Acquisitions
This is the simplest piece of information—a single dollar amount—to give you an idea of what your dealership is worth. But obtaining the information isn’t necessarily simple. The vast majority of auto dealerships are privately owned, so their sale price is not a matter of public record. Local or county governments usually maintain a record of the real estate portion of sales (for property tax purposes) and you may be able to request access, but they are not readily available.
This would be one reason to contact a broker sooner rather than later. We study these markets every day (in our own dealings and in the market at large) and we have an accurate, up-to-the-minute picture of what businesses like yours are selling for. Without compromising anyone’s confidentiality, we can give you a reliable, evidence-based range for your dealership sale.
Valuation Based on Assets
In this method, you add up the value of every piece of your dealership. This is a more complex approach, but it’s based on the assets right in front of you, and it can give you the most precise picture of value.
- Tangible Assets — Add up the value of your total inventory, real estate, technology, and all other tangible assets. If you want, you can set a range by considering (on the low end) each item’s liquidation value and (on the high end) your preferred selling price.
- Intangible Assets — This is also called a “startup cost” valuation, because the idea is to imagine (or remember) how much money it would take to establish your business in its current state. What’s the initial investment? What’s the budget on branding, marketing, staff training, etc? Consider the residual value of the hours (the blood, sweat, and tears) that you and your team have put into growing the business.
- Liabilities — Keep in mind, you’ll have to subtract any liabilities from your total value. It’s a good idea to minimize liabilities, because in addition to being a negative value, they can create resistance with buyers who want to start with a clean slate. (More on that below.)
Valuation Based on Finances
Here it’s a good idea to consult a CPA who’s experienced in business valuation. You can get a basic idea for your dealership’s value by multiplying annual profits (before taxes), usually by about 5-7x. But it’s not always this straightforward. You need to account for any anticipated growth, along with other internal and external factors, for a valuation that withstands scrutiny.
There is certainly some overlap between these three methods of valuation. After starting with one, the other two remain available for you to strengthen the case for your dealership’s value going forward.