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Valuation Multiples for Tire Dealerships

Valuation Multiples for Tire Dealerships

Demand for tire sales is expected to increase over the coming years. As such, now is a good time to enter the industry or prepare to exit. Whether you plan on buying a tire dealership or selling a tire dealership, understanding the value is important. When valuing a tire dealership, a business appraiser often uses valuation multiples for tire dealerships. Multiples are just one method the business appraiser uses to determine the value of a tire dealership.

Below we show and discuss average valuation multiples for tire dealerships. As a business appraiser, Peak Business Valuation provides business appraisals for tire dealerships across the country. We would love to help you understand the value of a tire dealership and answer any questions you have. Schedule your free consultation today to get started!

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Valuing a Tire Dealership

As a business appraiser is valuing a tire dealership, they consider many important factors. These factors are called key value drivers. A few of the key value drivers for a tire dealership include the revenue split of tires vs services, average vehicle count and ticket, and loyalty of customer base, among others. The business appraiser will analyze your financial statements, key value drivers, and assess how your tire dealership compares to competitors. Using valuation multiples for a tire dealership and other methods the business appraiser determines a fair market value for the tire dealership.

For more information, see Value Drivers for a Tire Dealership. As well as, Increasing the Value of a Tire Dealership through Customer Loyalty.

As you prepare to sell a tire dealership, obtaining a business appraisal can help you maximize the value. Business appraisals for selling a business can help in determining a fair listing price. Some businesses never sell because of a high listing price or because the business is not prepared to sell. A business appraisal can help you be more successful in selling a business.

If you are looking at buying a tire dealership, a business appraisal is an important part of the due diligence process. A business valuation can help negotiate a fair purchase price and help you understand more deeply the operations of the business so you can feel confident in your business acquisition.

Peak Business Valuation, business appraiser, loves working with individuals who are buying a tire dealership or selling a tire dealership. Knowing the value of a tire dealership is essential. As such, we are happy to answer any questions you have about valuing a tire dealership. Schedule your free consultation by clicking on the link below.

Valuation Multiples for Tire Dealerships

The below graphic shows average valuation multiples for a tire dealership. Know that these averages are only a guide. For specific multiples for your tire dealership, schedule a free consultation with Peak Business Valuation, business appraiser.

Valuation Multiples For a Tire Dealership

Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.

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What is a Valuation Multiple?

Valuation multiples are ratios. Essentially, they compare two factors to each other. Using valuation multiples for tire dealerships is a common method a business appraiser at Peak Business Valuation determines the value of a tire dealership.

For example, one of the common valuation multiples is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings with the implied value of the business. Say the seller’s discretionary earnings of a tire dealership are $178,000. A business appraiser decides a 2.40x SDE multiple is applicable. In this case, the implied value of the tire dealership is approximately $427,200. Whereas, if the business appraiser uses a 3.04x SDE multiple, the tire dealership is worth approximately $541,120.

Below we show how to calculate valuation multiples for tire dealerships. This includes REV, EBITDA, and SDE multiples for a tire dealership. Keep in mind these numbers are only averages. In addition to multiples, the business appraiser uses several business valuation approaches when valuing a tire dealership. Doing so gives a range of fair market value for the tire dealership. For questions or additional information, schedule a consultation with Peak Business Valuation, business appraiser.

SDE Multiples for a Tire Dealership

Average SDE Multiple range: 2.10x – 3.10x

According to Peak’s database, the SDE multiple for a tire dealership ranges between 2.10x – 3.10x. To calculate the implied value of the business, refer to the following calculation below. Take the seller’s discretionary earnings and apply the applicable SDE multiple.

SDE X Multiple = Value of the Business

For instance, a tire dealership owner has a seller’s discretionary earnings of $268,000. In this scenario, the business appraiser at Peak determines a 2.56x SDE multiple is most appropriate. Using the above equation, the approximate value of the tire dealership is $686,080.

$268,000 X 2.56x= $686,080

A small business often transacts on cash flow multiples. Cash flow multiples include SDE and EBITDA multiples. This is because cash flow multiples consider expenses that impact cash flow. The seller’s discretionary earnings adds back common expenses a new business owner may not incur. Some of these include non-recurring or non-related business expenses, a fair owner’s compensation, and personal expenses, among others. See Understanding Seller’s Discretionary Earnings to learn more.

EBITDA Multiples for Tire Dealerships

Average EBITDA Multiple range: 2.68x – 4.89x

In our data, average EBTIDA multiples for tire dealerships range between 2.68x – 4.89x. To calculate the value of the tire dealership, apply the multiple to EBITDA. See the calculation below.

EBITDA X Multiple = Value of the Business

To illustrate, the EBITDA of a tire dealership is $189,000. It transacts at a 3.81x EBITDA multiple. In this scenario, the implied value of the tire dealership is approximately $720,090.

$189,000 X 3.81x = $720,090

Using an EBITDA multiple gives an investor a better idea of their potential return on investment or ROI. This multiple may be preferred by the business appraiser because it normalizes differences in taxation, fixed assets, and capital structure. Normalized ratios make it easier for the business appraiser to compare similar companies. EBITDA multiples can also more accurately represent the future earnings a buyer can expect to make from the business.

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REV Multiples for a Tire Dealership

Average REV Multiple range: 0.27x – 0.49x

Last, in Peak’s database, tire dealerships commonly sell between a 0.27x – 0.49x REV multiple. The business appraiser calculates the value of the tire dealership by taking the most recent 12-month period of revenue. They then multiply it by the applicable REV multiple. Refer to the equation that follows.

Revenue X Multiple = Value of the Business

For example, the revenue of a tire dealership is $2.1 million. A business appraiser at Peak Business Valuation determines a 0.38x REV multiple is most applicable for the business transaction. As such, the tire dealership has an approximate value of $798,000.

$2,100,000 X 0.38x = $798,000

When valuing a tire dealership, the valuation expert determines what valuation multiples for tire dealerships are most applicable to the valuation. Most often they use several valuation methods to determine the fair market value of the tire dealership.

Summary

When looking at valuation multiples for tire dealerships, understand that there are many factors the business appraiser considers. In addition to analyzing the financial statements, the valuation expert assesses key value drivers and compares your business operations to similar tire dealerships. Using this information and the business appraiser’s knowledge and expertise they determine a fair value of the tire dealership.

Peak Business Valuation, business appraiser, values tire dealerships across the country. We are happy to answer any questions about valuing a tire dealership and valuation multiples for tire dealerships. To start a business appraisal for a tire dealership, schedule a free consultation. We look forward to speaking with you!

 

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