New Car Dealership Valuation Multiples
Understanding the value of a new car dealership enables strategic decision-making, whether you are buying, growing, selling, or seeking financing. If you need a quick estimate, valuation multiples indicate a dealership’s worth based on the current market. However, finding applicable new car dealership valuation multiples can be challenging. To ensure the most accurate results, it is best to obtain a business valuation. When valuing a new car dealership, business appraisers apply precise multiples in combination with various financial analyses. This provides key insights on the dealership’s value, strengths, weaknesses, risks, growth opportunities, and more.
In this article, we outline a few popular new car dealership valuation multiples. Please note that these figures are derived from industry norms and may not reflect the value of your specific dealership. To learn the true value of your dealership, consider working with a certified business appraiser.
Peak Business Valuation is a professional business appraiser that values new car dealerships throughout the United States. We frequently help individuals looking to buy, grow, sell, or secure financing for a new car dealership. In addition, we can address any questions you may have on valuation multiples or the valuation process. Get started today by scheduling a free consultation with Peak Business Valuation below!
What Are New Car Dealership Valuation Multiples?
Valuation multiples are financial ratios that compare a company’s value to a financial metric such as cash flow or revenue. Business appraisers can use these ratios to gauge what a buyer might pay for a new car dealership in today’s market. At Peak Business Valuation we review previous transactions of similar new car dealerships to determine suitable multiples. For more guidance, see Valuation Multiples for a Car Dealership.
Common New Car Dealership Valuation Multiples
During a new car dealership valuation, business appraisers typically apply SDE, EBITDA, and revenue multiples. Each of these multiples provides a different view of the dealership’s worth. Below, we explain each multiple and provide a general range in the new car dealers industry.
SDE Multiples for a New Car Dealership
Seller’s Discretionary Earnings (SDE) reflect the total economic benefit available to a dealership owner. To calculate SDE, a valuation expert adds the owner’s compensation, discretionary expenses, and non-recurring costs to net income. Then, a relevant multiple is applied to estimate the new dealership’s value. This method is frequently used for small to mid-sized dealerships.
Formula: Business Value = SDE × Multiple
Range: New car dealerships often sell between 2.97x and 5.55x SDE.
New Car Dealership EBITDA Multiples
EBITDA refers to Earnings Before Interest, Taxes, Depreciation, and Amortization. This metric reflects the core earnings of a dealership before non-operational expenses. Peak Business Valuation generally uses EBITDA multiples for larger new car dealerships.
Formula: Business Value = EBITDA × Multiple
Range: EBITDA multiples for new car dealerships can range from 3.37x to 7.73x EBITDA.
Revenue Multiples for a New Car Dealership
Revenue multiples measure a dealership’s value based on the total sales over the last year. While this estimate is useful, revenue multiples do not account for profitability. As such, business appraisers often prioritize cash flow multiples such as SDE or EBITDA.
Formula: Business Value = Revenue × Multiple
Range: New car dealerships generally transact between 0.08x and 0.22x revenue.
When valuing a new car dealership, Peak Business Valuation applies the above multiples alongside various valuation methods to ensure accuracy. If you need a reliable estimate of your new car dealership’s value, we are here to help! Click the button below to schedule a free consultation with Peak Business Valuation!
How to Value a New Car Dealership Using Multiples
When valuing a new car dealership using valuation multiples, business appraisers also evaluate market trends, economic conditions, risks, advantages, and other key variables. In some cases, weighted averages are used to balance out irregularities or seasonality. These practices ensure a more accurate valuation since market multiples overlook many important factors.
Read How to Value a New Car Dealership to learn more.
Rules of Thumb for New Car Dealerships
Industry rules of thumb and valuation multiples can provide a rough estimate of a dealership’s value. However, these tools are often oversimplified and do not account for key financial and operational variables. If you need a comprehensive and reliable valuation, consider receiving a professional business appraisal. Schedule a free consultation with Peak Business Valuation today!
Factors Affecting New Car Dealership Valuation Multiples
Many factors can affect new car dealership valuation multiples. Understanding these variables can help dealership owners make strategic decisions to maximize the value of their business. Below are a few key value drivers in the new car dealer industry:
- Manufacturer Relationships: Establishing strong relationships with manufacturers can provide reliable access to inventory, improving a new car dealership’s stability. This often results in stronger multiples.
- After-Sale Services: Providing quality after-sales services, like repairs, financing or insurance packages, can help increase profit for new car dealers. This can have a significant influence on the overall value of a dealership.
- Location: Dealerships in accessible locations near key markets and dense populations can expect more traffic and sales. This can help secure favorable new car dealership valuation multiples.
- Competitive Pricing: Offering cars at a reasonable price is critical in this competitive industry. Competitive pricing can boost demand and increase the value of a new car dealership.
To learn more about increasing a new car dealership’s value, see Value Drivers for a New Car Dealership.
Conclusion
Valuation multiples are fundamental when determining the value of a new car dealership. However, relying solely on these figures does not provide a complete picture of a dealership’s value. To ensure an accurate appraisal, it is important to obtain a professional new car dealership valuation. In addition to using new car dealership valuation multiples, business appraisers factor in the company’s strengths, weaknesses, risks, opportunities, and more. This provides a precise insight into your dealership’s value and growth potential.
As a professional business appraiser, Peak Business Valuation can provide you with a new car dealership valuation. In addition, we are here to discuss any questions you have about valuing a new car dealership. Schedule your free consultation with Peak Business Valuation by clicking the button below!
See Car Dealership Business Valuations and Valuing a New Car Dealership to learn more.
