There are several advantages and opportunities for tire dealerships right now. Because the price and demand for cars are currently extremely high, it causes the value of tire dealerships to rise. Additionally, over the next five years, revenue is expected to grow significantly for tire dealerships. Now is a great time to be involved in the tire dealer industry! One important step is to understand the key value drivers for a tire dealership.
One of the ways Peak Business Valuation, business appraiser Texas, helps tire dealerships is by providing education about ways to increase the value of a business. If you are looking to grow, sell, or buy a tire dealership knowing what drives the value can help you be prepared.
Value Drivers for a Tire Dealership
Focusing on the value drivers for a tire dealership can help you grow and maximize the value. Peak Business Valuation, business appraiser Texas, loves to help companies grow and increase their value! One of Peak’s main goals is to help companies thrive! Obtaining a business valuation from Peak Business Valuation is the best way to understand the value of a tire dealership. Get started by scheduling a free consultation. Below are factors that impact the value of a tire dealership.
% Of After-market Services
The first and most important value driver for a tire dealership is the percentage of revenue on tires verse aftermarket services. A good tire dealership has a 50/50 split – 50% tires and 50% services. However, the average is normally about 70% tires and 30% services. Tire dealerships closer to 50% for each indicates a higher profit potential. This will likely result in a higher business valuation, and in turn a higher selling price.
Average Vehicle Count and Average Ticket
The next value driver a valuation expert considers is the number of vehicles a tire dealership sees and the ticket. On a monthly basis, what is your tire dealership’s average vehicle count? In addition, what is the average ticket? The higher both numbers are, the more valuable the tire dealership will be.
Loyal Customer Base
In addition, to the vehicle count, a valuation expert will consider the number of customers and their loyalty. It is important to note that a single commercial account should not generate more than 20% of revenues. As such a diverse customer base is vital to increasing the value of a tire dealership. Maintaining a strong reputation both in-person and online is key to customer loyalty. Repeat customers create stable revenues for tire dealerships. For ideas on building a loyal customer base see, “Growing your Customer Base.” As well as “The Value of Customer Loyalty.” For more in-depth information specific to a tire dealership see Increasing the Value of a Tire Dealership Through Customer Loyalty.
Supplier Concentration and Proximity
A valuable tire dealership is in relatively close proximity to suppliers. What is the delivery process and timeline? It is also important to not have high supplier concentration. If a tire dealership has only 1-2 suppliers, it is riskier than a tire dealership with 4-5 suppliers. When a business appraiser such as Peak Business Valuation, values your business, they do an in-depth review of the industry and the risks associated with operating within the industry. Diversifying your supplier base can help reduce risk. Schedule a free consultation to learn more about risk.
Proximity and Number of Competitors
The next factor a valuation expert will look at is the number of competitors in the tire dealership area as well as proximity. The tire dealer industry is very competitive, especially for major chains like Discount Tire, Evan’s Tire, etc… As well as competition from big-box retailers such as Costco and Walmart.
Lease Terms and Rate
One of the largest expenses for a tire dealership is the lease. A valuation expert will look at industry averages and compare them to your tire dealership. To find out more about what industry averages look like, schedule a free consultation with Peak Business Valuation, business appraiser Texas.
Team/Employees
The next important value driver is the team. Is there a manager and key techs? How long have they been with the company? A tire dealership with a strong team and tenure tends to receive the highest valuation multiples.
Equipment Condition
Next, one of the most valuable parts of a tire dealership is the equipment. Be sure to keep equipment up-to-date and well-maintained. In addition, the more service bays you have the higher the value of the tire dealership.
Ownership Dependence
Last, what is the level of involvement of the current owner? The most valuable tire dealerships are not heavily owner-dependent. The owner either oversees or works with customer service interacting with clients rather than a tech fulfilling. For ideas see “Reducing Owner Dependence.”
Summary
By understanding key value drivers for a tire dealership, you can set goals to maximize the value. Whether you plan on buying or selling a tire dealership, knowing the value of a tire dealership is key. A business valuation expert uses their professional judgment, experience, and relevant information to determine the value.
The first step to finding out the value of a tire dealership is a business valuation. A business appraisal will also assess the strengths, weaknesses, and opportunities of the tire dealership. Peak Business Valuation, business appraiser Texas, values tire dealerships regularly. We are happy to answer any questions you have about the value of a tire dealership. You can reach out by scheduling your free consultation below!
See also Valuing a Tire Dealership, Valuation Multiples for a Tire Dealership, How to Value a Tire Dealership, and Increasing the Value of a Tire Dealership through Customer Loyalty.
