Adding Value to Your Dealership
When you run a dealership, you should always be looking for ways to build valuable, smart, strategic considerations and moves that will help you when it’s time to consider selling.
The valuation formula boils down to one simple equation: Earnings x Multiple. When you increase either of these factors, your value increases.
Earnings is the easiest factor for you to influence. Establishing a track record of profits that show consistent growth from year-to-year signals stability for a potential buyer. Earnings are also influenced by hiring and retaining a great team that delivers results. Employee turnover is a costly expense that’s not easily seen. On top of that, you want to make sure your dealership is “looking the part.” When you keep your imaging up to date and your facilities in good condition, it’s money that a buyer won’t have to spend to update your property.
You also need to keep innovating, don’t be left behind. Investments in digital marketing and the new tools that are needed to reach today’s customer will pay dividends down the road.
One of the most important elements of maintaining healthy earnings is a solid fixed absorption ratio. Your goal should be 85%, but the closer you get to 100%, the more value you drive into your business. As interest rates go higher, you’ll be spending more to have cars on your lot. Inventory turnover will become more important than ever. Taxes are also an element of earnings. Brady Ware has strategies that can help you earn more…and help you keep more of what you earn. The other factor, the multiple, is really a reflection of perceived risk. The higher the risk, the lower the multiple, and vice versa.
If your dealership is underperforming, it’s a risk for anyone to buy it. That decreases your multiple. Higher volume stores usually command a higher multiple and the same is true if you have multiple locations because some costs, and hence risk, can be reduced. Buyer demand also increases your multiple, because you have the pulse on what car buyers want. The location, good or bad, impacts your multiple as well as the make of car you’re selling. Competition, low customer satisfaction and low retention rates will increase the risk, and lower the valuation multiple, of your dealership.
These are the many things that can impact the value of your dealership. Put yourself in the buyer’s shoes and start assessing the areas mentioned above. Our dealership advisors are ready to assist you and make a difference in your value.