When dealership owners think about increasing the value of their business, they often focus on growing revenue or boosting profitability. While those things certainly matter, buyers and investors look at much more than annual earnings. The decisions you make today around taxes, operations, and recordkeeping can significantly impact how attractive your dealership is to a future buyer.
Here are three factors that can either help or hurt your dealership’s valuation when it’s time to sell:
1: Less tax today = less goodwill $$ tomorrow
Most owner-operators of privately held companies do what they can to minimize taxes. There is nothing wrong or illegal about that. But when you push the envelope year after year…you are reaping immediate rewards (lower taxes & more immediate income) while sacrificing long-term value (a higher sales price) because your historical tax returns consistently show lower earnings.
Yes, you can document “add-backs” to increase the historical earnings stream… but most buyers and investors rely on taxable income to do their own analysis and projections. Most privately owned dealerships sell at a goodwill multiple of earnings + FF&E + inventory. If the multiple is three, every dollar of earnings is worth three dollars in goodwill.
If you are thinking about selling in the next five years…you really should “do the math” to figure out how much those tax deductions are really worth. You can do it yourself in Excel or ask for help from a tax advisor.
2: Systems = more autonomy = more value
Proven systems and processes allow the Dealer Principal to step away from day-to-day operations without the dealership missing a beat. OEMs have stiff requirements. There is a very small pool of buyers who have the net worth and experience demanded by the OEM that also want to work 60+ hours a week. If you have a well-run dealership that an investor can rely on to be turnkey…you have a much better chance of selling your dealership with a reasonable amount of goodwill.
Yes, there are some investors out there looking for underperforming dealerships. You know who those investors are? The ones that have strong processes in place, have built and trained their teams around them, and are now looking for more dealerships in which to implement their best practices. Their attention to the daily “small things” helped create the profitability and consistency needed to acquire more dealerships.
3: Good records
I wish I had tracked over the years the correlation between well-kept records and goodwill value. During a transaction, buyers want confidence in the numbers. Clean financial statements, organized operational records, and consistent reporting help reduce uncertainty and make due diligence easier. The easier it is for a buyer to verify performance, the more confidence they may have in the value of the business.
I do not believe reliable financial and operational reports create a well-run dealership. I believe reliable reports are evidence of a Dealer Principal who is in control: monitoring daily operations, taking action to run an efficient and profitable dealership, and producing clean records that demonstrate it.
Laura Lemco, AM, MBA - Dealership Valuation Services, LLC
Laura Lemco grew up in her parents’ Honda, Suzuki, and Harley-Davidson dealership. When her father started a consulting firm for motorcycle dealerships across the globe, Laura worked in varying consulting and sales roles including F&I sales and building membership in professional peer groups. Eventually, Laura took over the consulting business. Laura’s consulting focuses on analyzing financials and operations to drive improvements. Laura builds on that expertise to develop appraisals to assist dealerships in transitions, succession planning, tax matters, dispute resolution, and litigation matters. Laura’s ability to work with Courts, attorneys, accountants, manufacturers, employees, shareholders, and finance companies led to engagements as an Interim Operator to stabilize dealerships in litigation or distress.
