Selling your automotive dealership is a bittersweet moment. You’ve dedicated years to the success of your business and of everyone in it.
Nonetheless, you want the sale to go well, and you want to get the best possible price, the price you deserve for your legacy.
With maximum momentum from your dealership sale, that next new chapter of your life will be all the more fulfilling— whether it’s (finally) the sweet relaxation of a vacation, or the thrill of a new business venture.
But not until you take that final step of selling your dealership. And to do it right, planning is critical.
Your number one priority is getting the sales price that your legacy deserves.
The right people — Typically, your allies will include a certified public accountant, a business attorney, and a dealership broker. You may not need them all right away, but there are advantages to engaging them early.
A plan — Below we’ve outlined a 3-phase approach to maximizing value in your upcoming dealership sale by: establishing a baseline value, finding opportunities to raise value, then mobilizing your team to enact the sale.
The three steps are straightforward, but the details involve some nuance. If followed, the outline below can be a roadmap to a fruitful dealership sale and a satisfying, rewarding future.
Establish a Baseline Dealership Value
Identifying the full value of your dealership is a complex process, and there’s never one exact number to arrive at. With this in mind, your goals are 1) to establish a price range, and 2) to compile the factors (the supporting argument) behind that price range.
Below are three methods of valuation, relevant to the automotive industry, that you might start with. It may not be worth your time to go through all three methods initially. (You might do that later, with your accountant or dealership broker, to create a more complete picture of your business’s value. )
But by starting with one valuation method, you establish a baseline and begin to build positive momentum behind your dealership sale.
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.
Step 2: Find Opportunities to Raise Value
Just as in selling a home, you can find ways to raise value before you put your dealership on the market. This step includes 1) knowing how to present the maximum potential of your business, and 2) investments that can concretely and efficiently raise your dealership sale value.
Know Your Business Positioning
There are several elements that, positioned correctly, will help you demonstrate and negotiate the value of your business. Your dealership broker can be a valuable consultant in this aspect of your business sale. Factors include (but are not necessarily limited to):
- Know your market strengths — This includes the current market position of your brand(s) and vehicles. Is your brand a top contender in the US market? Do you sell mass-market in a robust middle class community, or luxury in a wealthy area? Obviously, geography plays a role here. A city dealership will typically have higher revenues. In a rural area, you may have a lower cost of operation (including taxes, insurance, advertising, etc.)
- Know the market — It’s a fact of life and business: markets fluctuate. In a buyer’s market, you may want to wait or look for other ways to raise your value. In a seller’s market, well… it’s time to sell! Right now (at the time of this publication) we have a healthy US auto market and low interest rates, which make great dealership sales conditions for all parties. And with politics and society changing rapidly, it might not be a good time to wait.
- Know your business history — Look back at your records. By showing your most successful years, you demonstrate the full power of your business to generate profits going forward.
- Know your growth opportunities — You can show value in your dealership sale by proving it’s an upside opportunity. Is your brand on an upward trend? Are you in an up and coming geographic market? Are real estate values rising in your area?
By telling your dealership’s story and presenting all these factors in the most convincing way possible, you strengthen the negotiation of your sale price.
Touch Up Your Business
Now that you have a solid picture and a compelling case for your dealership value, look for clear-cut. efficient ways to raise value further and create ROI.
- Aesthetics and Infrastructure — If you’ve ever sold a home, you know there are ways to raise the sales price by making common-sense home improvements. In automotive, though we already maintain our facilities to convey value to customers, it’s worth taking a look around for any projects that will efficiently raise value for dealership buyers.
- Systems and Other Updates — Make sure your business is not behind the times. Get up-to-date on all software, staff training, and other relevant updates. Consider low-hanging fruit where you can invest a relatively small amount to create big value in your dealership.
- Reduce your liabilities — Of course, a financial liability is a direct subtraction from the total value of your dealership. But it’s also a psychological roadblock to prospects. By eliminating liabilities upfront, you can ease the minds of buyers, allow them to start business with a clean slate, and make your dealership sale more attractive to more prospects.
Step 3: Mobilize Your Team
As mentioned above, the expertise to guide your dealership sale will chiefly come from a business attorney, a certified public accountant, and a dealership broker.
Your attorney will help with any binding contracts and other legal clarifications that may arise. Your accountant will help on several of the steps above in determining and bolstering the value of your dealership.
Your broker then develops the strategy and provides the resources to put your dealership sale in motion, all the way across the finish line. Ideally, you don’t want just any business broker, you want an automotive dealership broker. Fine-tuned knowledge and specialty in automotive will help immensely in negotiating the best price for your business.
It’s for these reasons that the team at DCG comprises individuals from all corners of the automotive world. We have top-level backgrounds in automotive manufacturing, financing, accounting, and more. Many of us have owned and sold dealerships ourselves, so we know exactly what it’s like to be in your position.
By the way, a major part of what we do is delivering a secure and confidential transaction, utilizing Non-Disclosure Agreements, and sharing details only on a need-to-know basis.
Working With Your Broker Through the Sales Process
DCG is the country’s only dual-agent Automotive M&A firm, with direct lines on both sides of the sale. We pride ourselves on our network of connections—with automotive manufacturers, financial lenders, dealership buyers and sellers, and more—that help us create a qualified, competitive environment around your dealership sale. The work we do is focused on getting you what your legacy is worth.
Contact DCG to speak directly with an Automotive M&A specialist. We’ll guide you through every step of the dealership sales process, so you can receive the rewards of a satisfying dealership sale and you don’t lose any time in the next fulfilling chapter of your life.