How Much Is Your Dealership Worth?
As I travel around the country perhaps the most asked question I receive is “What is my dealership worth?” There is no quick answer or formula that can be broadly applied. I do however have a standard reply - “What else are you going to do??” Before looking for what your store is worth to someone else, consider what it is worth to you.
In spite of all the challenges the business provides, it can also earn you a great living and a life style most people envy. Before considering earnings or a price based on a multiple of those earnings, think about everything you get out of the business.
Take a look at the calendar as well as the balance sheet. What trips have you taken in the last year? What toys did you have to play with? Think about all that the business has provided for you and your family.
What are the reasons driving you to sell? If you are tired of the swirl and constant struggle to stay in control, consider what you will have in your “next life”. Will you be more in control of your next endeavor? Will it provide the life style you have now? If there is a business out there that is truly “turn key” and does not confront you with a myriad of challenges, it will cost you more than you can get for your motorcycle dealership.
If it is time to retire or if there is something else you really would like to do, what your dealership is worth is a serious consideration. What drives the price? The easy parts first.
The value of the real estate is easy to establish with professional appraisals. I always try to remove the real estate from negotiations for this reason. The market price is the market price whether you sell or lease the property.
FF & E (fittings, fixtures and equipment) are typically priced at book, market or replacement cost. There is room for negotiation here. As a seller you would like to obtain replacement price and the buyer wants to buy at the net depreciated value. A price somewhere in between is fair.
The inventory valuation is a little more complex. Here are the most common formulas:
New, zero mile, current inventory is priced at 100% of current invoice
Non-current and demo models are priced at 90%, less any damage
Used inventory is priced at NADA used wholesale “clean”, less reconditioning
Parts and accessories:
Current inventory 1 – 12 months in stock = 100% of current wholesale
Non-current inventory 13 – 24 months in stock = 50% of current dlr. price
Parts and Accessories in stock over 24 months are worth nothing
You have appraised the property and counted the inventory, now what is the business worth? Call it goodwill, blue sky or enterprise value, the number, like most things in life, is what you can get. The blue sky number is all over the board.
For a Harley-Davidson dealership, or a metric dealership in a state with good franchise laws, I advise buyers to target 3 times forward earnings. That equation turns into a win X win for an underperforming dealership. The seller receives a high multiple of earnings, sometimes 6 or 7 times trailing earnings and the buyer who can cash in on the “head room” makes a good buy.
If you have a well run dealership that cashes in on all of the peripheral opportunities, used bikes, F& I, maintenance agreements, etc., there is not the head room and you will not receive the high multiple. So, back to my first question: Do you really want to sell?
If you are in a state that does not offer good franchise protection to the dealer by providing a defined area or territorial exclusivity, the value of the business is greatly diminished. Does your state law guarantee you the right to sell? Does the law limit OEM challenges to just cause?
Without some sort of guarantee of supply and the exclusive rights to sell the products you offer, the business has no value, other than inventory. Hopefully you are in a state with a franchise law that protects your investment. (If you want to sell your dealership in the future, now is a good time to check out your state association and help get some good franchise laws in place!)
When it does come time to sell, you need someone who can credibly project the forward earnings and potential of the dealership. You need more than just your tax returns as a basis. The tax returns will never reflect the true value of the business. Consider all of the above and if you really want to sell, or you are just curious about what your dealership will bring, give us a call at (303) 697-8514 or e-mail me at firstname.lastname@example.org.
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Motorcycle Industry Consulting Services
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Frederiksted, St. Croix USVI 00840
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303-697-8514 Laura Lemco
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