Business Valuation for Buying a New Car Dealership
After the strain created by the COVID-19 pandemic, the new car market has rebounded and been one of the strongest markets in the US. New car dealerships have greatly benefited from the increased demand. If you are looking for a way to profit from the strong new car market, buying a new car dealership may be right for you. Getting a business valuation for buying a new car dealership is essential for the buying process.
Peak Business Valuation, business appraiser, has years of experience and can provide you with a new car dealership valuation. If you would like to get started or learn more about how to value a new car dealership, schedule a free consultation with Peak now!
What is a Business Valuation for a New Car Dealership?
A new car dealership valuation is an assessment of a company’s current value. For a new car dealership, a business appraiser will use the dealership’s financial statements to determine its worth. Knowing the value of a dealership will help potential buyers determine how much they should be willing to pay.
New Car Dealership Valuation Methods
Business appraisers use several methods when valuing a new car dealership. The most common are the market, income, and asset approaches. Appraisers will use the approaches that best fit the business’s needs.
Market Approach: The market approach uses valuation multiples to compare dealerships to similar dealerships within the market. Typical car dealership multiples include REV, EBITDA, and SDE multiples. Check out Valuation Multiples for a Car Dealership to learn more.
Income Approach: The income approach assesses the current value of future income potential. This approach is most common for industries with reliable cash flow projections. Read How to Value a New Car Dealership to know more about the income approach.
Asset Approach: The asset approach determines a dealership’s value by the value of its assets. Business appraisers use the asset approach for industries with high asset bases. Assets commonly held by new car dealerships include inventory and dealership facilities.
Negotiating a Fair Purchase Price for a New Car Dealership
Buying a new business can be stressful, and negotiating a fair price can be one reason why. Obtaining a business valuation for buying a new car dealership can help you better understand the value of the dealership. Knowing this can help you navigate the negotiation process and avoid overpaying for your dealership.
Building a Strong New Car Dealership Business Plan
Once you have your new car dealership, creating a strong business plan will be important for your success. A new car dealership valuation can help you build and implement an effective business plan and help you succeed.
Understanding Opportunities of a New Car Dealership
In addition to having a strong business plan, understanding opportunities within your dealership is essential. These opportunities are commonly referred to as key value drivers. Some key value drivers for a new car dealership are:
- After-Sale Parts and Services: Dealerships that provide additional after-sale services, such as parts and servicing, will have a higher value than those that don’t.
- Adaptability to Electric Vehicle Market: Dealerships that can adapt to include a growing electric vehicle market will have a higher long-term value.
- Franchise Partnerships: Franchise partnerships for new car dealerships offer brand recognition and stability, potentially increasing a dealership’s worth.
- Physical Location: Dealerships in prime, visible locations, such as near a major highway, are typically worth more than those that aren’t seen as often.
A business valuation for buying a new car dealership from Peak Business Valuation will help you identify and capitalize on opportunities in your market. Get started by reading Value Drivers of a New Car Dealership and scheduling a free consultation with Peak!
Identifying Risks of Buying New Car Dealership
As with any business venture, owning a new car dealership comes with inherent risks. Not recognizing and planning for these risks can quickly tank a business. A new car dealership valuation will help you recognize and plan for threats to your dealership. Common risks for new car dealerships include:
- Supply Chain Volatility: The new car market is subject to high supply chain volatility, as seen during the COVID-19 pandemic.
- Employee Shortages: Dealerships across the country are struggling with employee shortages, forcing higher wages or reduced hours.
- Growing Online Dealership Presence: Online dealerships, such as CarMax and Carvana, pose a threat to the market share of traditional new car dealerships.
- High Competition: The new car market is highly saturated, and a dealership in a location with stiff competition may struggle to increase its income margin.
Securing Financing for Buying a New Car Dealership
Even after negotiating a fair purchase price, buying a new car dealership is expensive. Most buyers need financing to be able to buy a dealership. A common method of financing a business deal is a loan from the Small Business Administration (SBA). The SBA offers small business loans with favorable terms such as low down payments, flexible repayment terms, and low interest rates.
SBA lenders commonly require a business valuation before approving an SBA loan. Peak works with over 90 SBA lenders nationwide and has years of experience in business valuations for SBA loans. Reach out today to learn more about how Peak can help you with a new car dealership valuation for an SBA loan! You can also see SBA Loans for New Car Dealerships to learn more.
Obtaining a New Car Dealership Valuation Report
As part of your new car dealership valuation process, you will get a valuation report. This report is a summary of the strengths, weaknesses, opportunities, and risks for your dealership. It will also include an assessment of the fair market value of a car dealership. The valuation report will help you understand the standing of your dealership and prepare for the future.
Conclusion
If you are hoping to enter the new car market, a business valuation for buying a new car dealership is a great first step. In this valuation, you will learn the worth of a dealership as well as areas for growth and improvement. With this information, you will be ready to proceed with your business purchase and own a profitable new car dealership.
Peak Business Valuation has an experienced team ready to help you with a new car dealership valuation. If you would like to get started, or simply learn more about how to value a new car dealership, reach out today to schedule a free consultation with Peak.
