Realistic Market Value, LLC. (RMV), a wholly owned subsidiary of National Business Brokers, Inc. has introduced a new definition for dealership valuations, which they call Realistic Market Value™
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Every dealership is unique and therefore no two dealerships are alike. The Realistic Market Value™ may vary by more than 100% for two automobile dealerships of the same brand, same sales and same profit.
What is the current value of your dealership? More specifically, what is the value of the intangible portion of your dealership, commonly referred to as blue sky?
Every dealer has an idea of what his/her dealership is worth, but that number may be off by as much as 50% or even more! RMV's data has shown that owners/founders tend to underestimate the value of their dealerships and second generation owners tend to overestimate the value.
You may want to know the Realistic Market Value™ of your dealership:
Failure to know what your dealership is worth can be very costly. Don’t guess what the value is, especially when the stakes are so high.
Two Honda dealerships each selling 800 new units annually and each nets $750K per year. Are the values the same?
It seems that everyone (dealers, accountants and especially bankers) calculate the value of a dealership primarily based on a multiple of earnings. The ROI may be the same on paper, but in the real world the value could be dramatically different.
When you decide to learn the value of your dealership, your first thought will most likely be to contact your CPA who will probably recommend ordering an appraisal. What method will the appraiser use to appraise your dealership? Appraisals tend to settle around three methods: (a) Cost or Asset-Based Approach, (b) Income Based Approach and (c) Market Approach
Since an asset-based approach ignores the largest asset-portion of your dealership, i.e. the goodwill, the appraiser will most likely value your dealership using an income approach and/or market approach.
Income approach - The appraiser will estimate the dealership value based on its ability to generate income. The calculation will include, in part, a cash flow projection and a multiple factor. To do so, your appraiser will rely on current year-to-date earnings and the previous 3-5 years of earnings. But wait a minute! What if the dealership is not being run to its true potential? And even worse, what if the dealership is losing money? How do you multiply losses to arrive at a value....?
Dealerships that lose millions of dollars can sell for millions of dollars! After all, it is a franchised business with territorial protection - that has value! And RMV's experience has taught us how to calculate it.
Market approach - The IRS (Revenue Ruling 59-60) details it's method of how to value a business based on market approach. The market approach is based in part on third party verifiable transactions. Successful use of this approach requires a large nationwide data bank of transactions. The vast majority of transactions are not published; therefore your appraiser will be forced to compare your dealership to similar dealerships which are publicly traded. Such an approach will inevitably ignore the unique circumstances or operating environments of your dealership, and will definitely overlook the hidden value that your (unique) dealership may have, like: reputation in the market place, quality of management, business trend, fixed operation potential, planning volume, market size, competition, synergy, geography, buyers’ desirability for your brand(s), marketability, etc. How about the extra value your dealership may have when presented to a unique buyer? Unique buyers pay more!
As we demonstrated in the example above, each company is unique and therefore the market approach may drastically differ from its Realistic Market Value™.
National Business Brokers, Inc (NBB) has dealt with thousands of buyers and sellers over the years and RMV has taken that data into account. RMV has it's finger on the market’s pulse, and believes that in today’s volatile business environment there is no substitution for a sensible market value.
Much of RMV's data was derived from the following facts:
RMV has developed a unique and proprietary process that will capture the Realistic Market Value™ of your dealership. RMV's proprietary algorithm calculates automobile dealership value based on:
The bottom line - you provide RMV with 3-5 years of operating statements, complete our detailed questionnaire, spend 10 minutes on the phone with RMV to clarify some specific questions which we may have, and RMV will provide you with a comprehensive business review which will include the Realistic Market Value™ of your dealership.
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