How to Value a Tire Dealership
The tire dealer industry has retained steady demand for many years. Recently, industry revenue has grown to $45.6 billion dollars. IBIS World expects this upward trend to continue. However, despite this growth, many tire dealerships struggle to remain profitable. This is due to various factors including fluctuating costs of rubber and price-based competition. These conditions may present challenges to those who are buying, growing, or selling a tire dealership. Nonetheless, tire dealerships can find success with proper guidance. To establish a competitive tire dealership, it is important to know how to value a tire dealership. This is vital whether you are entering or exiting the tire dealer industry.
To understand how to value a tire dealership, it is best to receive a business valuation. Peak Business Valuation is a professional business appraiser. At Peak, we work with tire dealerships on a regular basis. We are happy to help you understand the value of a tire dealership. Peak can provide you with a business valuation for a tire dealership! In addition, we can answer any questions you have about valuing a tire dealership. Start now by scheduling a free consultation with Peak below!
How to Value a Tire Dealership
Typically, business appraisers at Peak use the market approach and/or the income approach to value a tire dealership. The valuation approach that the expert uses depends on various factors. Our valuation experts receive extensive training and will use their expertise to determine which methods are best for your tire dealership. Depending on the purpose of the valuation, the business appraiser may use a combination of valuation approaches.
Valuing a Tire Dealership Using the Market Approach
When valuing small businesses, experts often use the market approach. This valuation approach is similar to how a real estate appraiser evaluates a property. Real estate appraisers assess similar properties that recently sold on the market. When a business appraiser uses the market approach, they compare your tire dealership to similar businesses that recently sold. For private tire dealerships, an expert uses private transaction databases. By comparing similar tire dealerships, they can accurately determine the fair market value of a tire dealership.
Multiples for a Tire Dealership
To determine multiples for a tire dealership you are buying or selling, an appraiser at Peak uses the proper NAICS or SIC code. Business appraisers use multiples when valuing a tire dealership with the market approach. In the following section, we discuss the basics of valuation multiples for tire dealerships.
REVENUE or SALES Multiple for a Tire Dealership
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- When using a revenue multiple to value a tire dealership, business appraisers apply a multiple to the dealership’s revenue. This helps them determine the total value of a tire dealership.
EBITDA Multiple for a Tire Dealership
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- EBITDA multiples measure the return on investment operators can expect to make from the tire dealership.
SDE (Seller’s Discretionary Earnings) Multiple for a Tire Dealership
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- Often, valuation experts use the SDE multiple to determine the value of a tire dealership. This is because the SDE multiple assesses a tire dealership’s cash flow by multiplying its seller’s discretionary earnings by the multiple.
The multiple the appraiser uses depends on the business transaction and the reason for the business valuation. Business appraisers at Peak Business Valuation use their knowledge to determine the best multiple for your tire dealership. To learn more, see Valuation Multiples for a Tire Dealership. To understand how to value a tire dealership, obtain a business appraisal. Peak Business Valuation, business appraiser is here to help! Schedule a free consultation with Peak Business Valuation today!
Valuing a Tire Dealership Using the Income Approach
The income approach is another common method to value a tire dealership. As part of the income approach, valuation experts assess the risks of the tire dealership. Below, we list a few common risks associated with buying or selling a tire dealership.
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- Location: The location of a tire dealership has a significant impact on its value. It is vital to be located in areas with high/steady demand for tires.
- Competition: The tire dealer industry is extremely competitive. It is important to differentiate from competition to succeed.
- Technology: Many successful tire dealerships provide tire maintenance services. As such, it is crucial to have quality repair equipment and technology.
- Key Personnel: It is important to hire trained personnel to work at your tire dealership. This increases efficiency and reduces owner dependency at your tire dealership.
Methods to Value a Tire Dealership Using the Income Approach
When valuing a tire dealership with the income approach, there are two methods to use. The first is the capitalization of cash flow method and the second is the discounted cash flow method. To better understand how to value a tire dealership with these methods, see the following paragraphs.
Capitalization of Cash Flow Method
The capitalization of cash flow method is best for tire dealerships with long and stable histories. When using this method, the expert determines an appropriate measure of economic income for one period. This time frame is then divided by a proper capitalization rate. The cap rate represents a reasonable rate of return a buyer can expect. It also assesses risks that may hinder the tire dealership’s success. We discuss some of these risks above.
Discounted Cash Flow Method
The discounted cash flow method uses 3-5 years of projections to determine the value of future cash flows at a tire dealership. The business appraiser then discounts the future cash flows using a discount rate instead of a capitalization rate. This process allows them to estimate the fair market value of a tire dealership. Typically, this method is best for businesses with a strong financial history. In addition, companies that have built reliable forecasts benefit from the discounted cash flow method. However, this method is less reliable since it uses future cash flow estimates which can be subjective.
Summary
There are various valuation approaches and multiples that business appraisers may use when valuing a tire dealership. To understand which methods and multiples are best for your tire dealership, receive a business valuation. During a business valuation, you will learn how to value a tire dealership. In addition, a business appraiser may help you understand how to maximize the value of a tire dealership. This is crucial whether you are buying, growing, or selling a tire dealership.
Peak Business Valuation, business appraiser, is happy to provide you with a business valuation! We work with many tire dealerships throughout the country. As such, we can answer any questions you may have about valuing a tire dealership. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser!
For more information see Valuing a Tire Dealership, Valuation Multiples for a Tire Dealership, and Value Drivers for a Tire Dealership.
