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So what is the value?

When RMV calculates the Realistic Market Value™ of a dealership we take into consideration over 50 factors which can affect value.

When you decide to learn the value of your dealership, your first thought will most likely be to contact your CPA who will probably recommend ordering an appraisal. What method will the appraiser use to appraise your dealership? Appraisals tend to settle around three methods:
(a) Cost or Asset-Based Approach, (b) Income Based Approach and (c) Market Approach

Since an asset-based approach ignores the largest asset-portion of your dealership, i.e. the goodwill, the appraiser will most likely value your dealership using an income approach and/or market approach.


Income approach - The appraiser will estimate the dealership value based on its ability to generate income. The calculation will include, in part, a cash flow projection and a multiple factor. To do so, your appraiser will rely on current year-to-date earnings and the previous 3-5 years of earnings. But wait a minute! What if the dealership is not being run to its true potential? And even worse, what if the dealership is losing money? How do you multiply losses to arrive at a value....?

Dealerships that lose millions of dollars can sell for millions of dollars! After all, it is a franchised business with territorial protection - that has value! And RMV's experience has taught us how to calculate it.

Market approach - The IRS (Revenue Ruling 59-60) details it's method of how to value a business based on market approach. The market approach is based in part on third party verifiable transactions. Successful use of this approach requires a large nationwide data bank of transactions. The vast majority of transactions are not published; therefore your appraiser will be forced to compare your dealership to similar dealerships which are publicly traded. Such an approach will inevitably ignore the unique circumstances or operating environments of your dealership, and will definitely overlook the hidden value that your (unique) dealership may have, like: reputation in the market place, quality of management, business trend, fixed operation potential, planning volume, market size, competition, synergy, geography, buyers’ desirability for your brand(s), marketability, etc. How about the extra value your dealership may have when presented to a unique buyer? Unique buyers pay more!

As we demonstrated in the example above, each company is unique and therefore the market approach may drastically differ from its Realistic Market Value™.

Appraisals are highly subjective...     3 of 4  

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