Blue Sky is the intrinsic value of an automobile dealership, over and above the value of its tangible assets. It is sometimes equated to the goodwill of a car dealership.
Most articles regarding the blue sky value of new car dealerships cite a multiple of earnings formula, such as three times earnings, four times earnings, and so forth. The idea that “blue-sky” can be determined by anything times anything is just plain wrong.
Even NADA the Car Dealerships: The Difference Between Pre-Owned and a Clunker GMC Sierra K1500 SLE Chippewa Falls WI 54729 National Automobile Dealers Association in its publication entitled “A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995, Revised July 2000 bemuses, in part, with respect to valuing a dealership by using a multiple of earnings: A Rule of Thumb valuation is more properly referred to as a “greater fool theory.” “It is not valuation theory, however.”
In its Update 2004, NADA omitted its reference to “fool”, but referred to the multiple formula as GMC Sierra K1500 SLE Chippewa Falls WI 54729 rarely based upon sound economic or valuation theory, and went on to state: “If you are a seller and the rule of thumb produces a high value, then this is not a matter of great concern. Go for it, and maybe someone will be stupid enough to pay you a very high value.”
A dealership’s blue sky is based upon what a buyer thinks it can produce in net profit. If potential buyers think it Seven Strategies to Evaluate a Car Dealership GMC Sierra K1500 SLE Chippewa Falls WI 54729 cannot produce a profit, the store will not sell. If it can produce a profit, then variables such as desirability of location, the balance the brand will bring to other existing franchises owned, whether or not the factory will require facility upgrades, and so on and so forth, determine whether or not a buyer will buy that particular brand, in that particular location, at that particular time.
I have been consulting with dealers for nearly GMC Sierra K1500 SLE Chippewa Falls WI 54729 four decades and have participated in over 1,000 automotive transactions ranging from $100,000 to over $100,000,000 and have never seen the price of a dealership sale determined by any multiple of earnings unless and until all of the above factors have been considered and the buyer then decided he, she or it was willing to spend “x” times what the buyer thought the dealership would earn, in order to purchase the business opportunity.
To think GMC Sierra K1500 SLE Chippewa Falls WI 54729 otherwise would be to subscribe to the theories that (1) even though you think a dealership could make a million dollars, the store is worth zero blue sky because it made no money last year; and (2) if a store has been making $5 million per year you should pay say 3 times $5 million as blue sky even though you think you will not produce that kind of profit. Both propositions are absurd. GMC Sierra K1500 SLE Chippewa Falls WI 54729 If a buyer does not think a dealership is worth blue sky, then what he is really saying is that he sees no business opportunity in the purchase and therefore, in my opinion, he should not buy the store.
Each dealership is unique with respect to its potential, location, balance that its brand brings a dealer group, and condition of facility. The sale is also unique with respect to whether it is a forced liquidation, GMC Sierra K1500 SLE Chippewa Falls WI 54729 orderly liquidation, arms length, insider, or a case where an anxious buyer is trying to induce an unwilling seller. There are management factors to consider, length and term of leases, possibilities or non-possibilities of purchasing the facilities and whether or not the factory wants to relocate the store or to open a new store up the street.
In the car business it is impossible to pick a dealership or a franchise out of a hat, GMC Sierra K1500 SLE Chippewa Falls WI 54729 multiply its earnings by some mystical number and predict either what the dealership is worth, or what price it would sell for – and it doesn’t matter if you are talking about a Toyota, Honda, Ford, Chevrolet, Chrysler, Dodge, or any other dealership. At any given time one franchise might be considered more or less desirable than another, but they are all valued in the same manner.
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10/15: Halloween In Chippewa Falls and Shop Small Raffle
Chippewa Falls Main Street will be hosting a great Trick-Or-Treating event. Kids can Trick-or-Treat at all downtown businesses on Halloween! You can meet at the West Central Wisconsin ...
Ice Dogs roll past Steel in NAHL series opener
14 and 15 in a regular-season opening series in Chippewa Falls, Wisconsin. Contact News-Miner sports editor Danny Martin at 459-7586. Follow him on Twitter:@newsminersports.
Wisconsin Orchard Celebrates 160th Anniversary
CHIPPEWAY FALLS, Wis. (AP) — A family's long planted history of harvesting fall's favorite fruit. This year marks the 160th anniversary of the Connell Family Orchard in Chippewa Falls. The orchard off...
Ice Dogs look to carry momentum into series against Steel
Fairbanks and Chippewa opened the season against each other Sept. 14-15 in Chippewa Falls, Wisconsin. Those games didn’t go the Ice Dogs’ way, as the Steel, who were formerly known as the Coulee Regio...
Candidates for assembly, state senate square off at forum
that go to River Falls. Now, my science students out there will have a place to go right down the road and everyone is going to benefit from that.” One issue seeing some of the strongest back-and-fort...
Western WI in focus at Twin Cities Film Festival
Among the highlighted films, The Lumber Baron is a full-length historical fiction from director Barry Andersson shot in and around the Chippewa Falls area. The story follows a Wisconsin man who ...
OFFICIALNotice of Public Hearing on Proposed Amendment to the Chippewa
Bridge Street, Chippewa Falls, Wisconsin for the purpose of receiving comments and approving amendment to the Chippewa County Waste Treatment and Disposal and Sanitation Ordinance, Chapter 62.The ...
State board modifies future elk seasons
26, the Wisconsin Natural Resources Board agreed to modify the state’s criteria for establishing future hunts for wild elk in the Clam Lake area and Black River Falls area ... Also, the Chippewa Tribe ...
Marching Band show returns to Chippewa Falls
The annual “Music Along the Chippewa” Marching Band show returned to Chippewa Falls Saturday. Twelve high school marching bands from Minnesota and Wisconsin came together to perform at one of the larg...
5 of the Spookiest Places in the Chippewa Valley
Chippewa Falls You can go to any bar in Wisconsin and see weird things happen, but if you want them to be paranormal you should drop in at this historic establishment as many odd things have happened ...