Car Dealerships Nissan Maxima SV in Colfax WI

Car Dealerships Nissan Maxima SV in Colfax WI

February 15, 2018
Posted by: solfa_admin

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 An Introduction To Used Car Dealers Nissan Maxima SV Colfax WI 54730 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 Nissan Maxima SV Colfax WI 54730 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 Automobile Dealerships – Valuing Blue Sky Nissan Maxima SV Colfax WI 54730 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 Nissan Maxima SV Colfax WI 54730 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 Nissan Maxima SV Colfax WI 54730 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. Nissan Maxima SV Colfax WI 54730 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, Nissan Maxima SV Colfax WI 54730 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, Nissan Maxima SV Colfax WI 54730 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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    Car Dealerships Nissan Maxima SV in Colfax WI

    February 15, 2018
    Posted by: solfa_admin

    Used car dealerships present the option for people that do not wish to buy a brand new car. The main thing that drives this industry is the money savings people can take advantage of when buying used instead of buying new. A new car immediately loses value the second you drive it off the lot. Let other people take that loss in value by buying a certified pre-owned car.

    A Is Now the Right Time to Buy a Car Dealership? Nissan Maxima SV Colfax WI 54730 common misconception is that used cars carry much more problems than buying brand new from a dealership. This isn’t true considering all the checks and measures your used car lot takes to make sure the car that they are selling is completely suitable and in perfect working order. In many cases these used vehicles still have an existing warranty on them, or you have the option of purchasing a Nissan Maxima SV Colfax WI 54730 warranty to make you feel confident you won’t have any costly repairs down the road.

    One major benefit a used car dealership presents to people is budget options. People can choose from highly expensive cars to very affordable economical cars on the same lot. This simply gives customers more options, and people really like to have these types of options. A used car dealership can also save people from taking Used Car Dealerships Nissan Maxima SV Colfax WI 54730 many trips to many different dealerships because they carry different brand named vehicles at all times.

    Customer service is a major consideration when it comes to the employees and owners of a used car dealership. Their mission is to find the right car, for the right person, and sell it to them at the right price. If their customers aren’t happy, they will lose business. This is why these types Nissan Maxima SV Colfax WI 54730 of dealerships are much friendlier than corporate owned new car lots.

    Used cars simply save people money. This savings can be from the overall price of the car, and the insurance cost of a car. Used cars are cheaper on insurance than when you buy brand new. There is also more room in the price a vehicle to haggle with, instead of paying the brand new car premium that other Nissan Maxima SV Colfax WI 54730 dealerships have.

    If you are in the market for a new vehicle, you should take a second glance at cars that are used. Many cars for sale that are used come off a lease, which means low miles and that it was highly maintained. This presents the best buy for a customer. No matter what your budget is, or what type of vehicle you are in the market for, a Nissan Maxima SV Colfax WI 54730 used car lot has the best chance of suiting your needs.

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    Car Dealerships Nissan Maxima SV in Colfax WI

    February 15, 2018
    Posted by: solfa_admin

    Most business valuations are driven substantially by the company’s historical financial statements, tempered by other factors such as: location, brand name, management and such. In truth and in fact, the dealership’s balance sheet represents less than half the information necessary to properly value an automobile dealership. The balance sheet is but a starting point from which a number of factors must be How to Approach Used Car Dealers Nissan Maxima SV Colfax WI 54730 added and subtracted in order to determine the true value of the assets.

    Valuing new car dealerships has to do with projecting future profits and opportunities based upon the “dynamics” of the particular dealership being valued and of the automobile business itself.

    The Internal Revenue Service recognizes that valuations include more than financial statements: “The appraiser must exercise his judgment as to the degree Nissan Maxima SV Colfax WI 54730 of risk attaching to the business of the corporation which issued the stock, but that judgment must be related to all of the other factors affecting the value.” Revenue Ruling 59-60, Section 3.03.

    DEFINITION OF MARKET VALUE

    The definition of market value according to the American Institute of Real Estate Appraisers’ Dictionary of Real Estate Appraisal, is: “The most probable price in cash, terms Benefits of Buying From Used Car Dealerships Nissan Maxima SV Colfax WI 54730 equivalent to cash, or other precisely revealed terms, for which the appraised property will sell in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under duress.” American Institute of Real Estate Appraisers, The Dictionary of Real Estate Appraisal. (Chicago: American Institute of Nissan Maxima SV Colfax WI 54730 Real Estate Appraisers, 1984), 194 195.

    In Revenue Ruling 59-60, the Internal Revenue Service defines “fair market value” as follows: “…the price at which the business would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge and Nissan Maxima SV Colfax WI 54730 relevant facts.”

    The purpose of Revenue Ruling 59-60 is to outline and review in general the approach, methods and factors to be considered in valuing shares of the capital stock of closely held corporations.

    The methods discussed in the Revenue Ruling apply to the valuation of corporate stocks on which market quotations are either unavailable or are of such scarcity that they do not Nissan Maxima SV Colfax WI 54730 reflect the fair market value.

    The Ruling goes on to state that no set formula can be devised to determine fair market value of closely held stocks and that the value will depend upon such considerations as:

    (a) The nature of the business and the history of the enterprise from its inception.

    (b) The economic outlook in general and the condition and outlook of Nissan Maxima SV Colfax WI 54730 the specific industry in particular.

    (c) The book value of the stock and the financial condition of the business.

    (d) The earnings capacity of the company.

    (e) The dividend-paying capacity. The ability to pay dividends is often more important than a company’s history of distributing cash to shareholders, especially when valuing controlling interests.

    (f) Whether or not the enterprise has goodwill or Nissan Maxima SV Colfax WI 54730 other intangible value.

    (g) Sales of the stock and the size of the block of stock to be valued.

    (h) The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter. With respect to an individual dealership sale, the Nissan Maxima SV Colfax WI 54730 best comparable is the amount the public company paid or received for buying or selling a similar dealership, not what the public company’s stock value or earnings multiple, per se, that is reflected on the stock exchange.

    In practice, in arriving at the fair market value of a new car dealership, several different formulas have been used:

    1. Return on Investment (or earnings valuation) Nissan Maxima SV Colfax WI 54730 Formula: The value of a business to a particular purchaser based upon a return on investment analysis. This value varies from purchaser to purchaser, according to the purchaser’s investment criterion, and it may or may not reflect fair market value. The National Automobile Dealers Association (NADA) refers to this value as “Investment Value.” A Dealer Guide to Valuing an Automobile Dealership, NADA Nissan Maxima SV Colfax WI 54730 June 1995, Revised July 2000.

    The capitalization rate is determined by the stability of the dealership’s earnings and the risk involved in the automobile business at the time of sale, investment, or valuation. This method is highly subjective as the capitalization rate is based upon the particular appraiser’s perception of the risk of the business; consequently, the lower the appraiser perceives the risk, Nissan Maxima SV Colfax WI 54730 the lower will be the capitalization rate and the higher will be the price he would expect a potential purchaser to pay for the business.

    In short, the capitalization rate is the appraiser’s opinion as to a rate of return on investment that would motivate a prospective purchaser to buy the dealership. Considerations include those specified in Revenue Ruling 59-60, as well as Nissan Maxima SV Colfax WI 54730 available rate of return on alternative investments.

    2. Adjusted Net Worth Formula: Net worth of the company, adjusted to reflect the appraised value of the assets used in the day to day operations of a business, assuming that the user or purchaser will continue to make use of the assets. To this “net worth” value will be added blue sky or goodwill, if Nissan Maxima SV Colfax WI 54730 any. The “Adjusted Net Worth Formula” is the most common method used in purchasing and selling a new car dealership.

    3. Orderly Liquidation Formula. This method values the assets as if all of them had to be sold – not at a “fire sale,” but in an orderly manner and without time constraints. Normally, if the dealership is profitable, some value will still Nissan Maxima SV Colfax WI 54730 be placed upon goodwill.

    4. Forced Liquidation. The lowest of all values, forced liquidation means that all of the assets must be sold at a forced sale such as an auction, creditors’ sale or by order of a bankruptcy court. A bankruptcy proceeding regarding a new car dealership almost never brings goodwill. This might be the most appropriate formula if the dealership has Nissan Maxima SV Colfax WI 54730 no lease (or only a short term remaining on its lease) and cannot, as a practical matter, relocate.

    5. Income Formula. The income formula is basically taking the store’s earnings and multiplying it by an appropriated capitalization rate. The trick here is the definition of “earnings.” In determining “earnings” a perspective purchase could use any combination of the following:

    (a) current earnings

    (b) average Nissan Maxima SV Colfax WI 54730 earnings – add the last five years together and divide by 5

    (c) weighted average earnings – usually an inverted weight with the current year multiplied by five, last year by four, the year before last by three, four years ago by two, five years ago by one, then adding them together and dividing by 15

    (d) cash flow – net income Nissan Maxima SV Colfax WI 54730 plus agreed add-backs such as depreciation, LIFO, personal expenses, excess bonuses and such

    (e) forecasted earnings – future projected earnings discounted to present day value.

    6. Fair Value. NADA also refers to a third value in addition to “Market Value” “Investment Value,” which it calls “Fair Value.” NADA describes “Fair Value” as being “…primarily used when a minority shareholder objects to a proposed Nissan Maxima SV Colfax WI 54730 sale of the company in assessing liquidating damages.” and defines it as: “The value of the minority interest immediately before the transaction to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the transaction and without reference to either a minority or non-marketability discount.”

    The NADA guide states: It is not common for auto dealers to run across this particular Nissan Maxima SV Colfax WI 54730 valuation standard. This author has never used, nor has ever seen this value used with respect to valuing automobile dealerships.

    As can be seen in this report, this author in discussing valuations excludes what NADA describes as “Fair Value”.

    7. The Greater Fool Theory. The National Automobile Dealers Association publication (A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995), bemuses, in part: Nissan Maxima SV Colfax WI 54730 “A Rule of Thumb is more properly referred to as a ‘greater fool theory.’ It is not ‘valuation theory, however.” (In its “Valuing an Automobile Dealership: Update 2004” NADA dropped the reference to “fool” and simply states that the theory is “. . . rarely based upon sound economic or valuation theory,” but advises sellers to “Go for it, and maybe someone Nissan Maxima SV Colfax WI 54730 will be stupid enough to pay [it].”

    The considerations for valuing new car dealerships are more complex than those used for valuing most other businesses. Dynamics such as the unique requirements of automobile manufactures and distributors can limit the amount of monies that may be paid for a dealership, regardless of what perspective purchasers may offer to pay for the store.

    Therefore, the value Nissan Maxima SV Colfax WI 54730 of a new car dealership varies based upon the needs and ability of the purchaser and, consequently, the same dealership could have two different values to two different purchaser and both values would be correct.

    Thus, our valuation of the subject dealership should be considered in the context and limitations of the facts and history of new car dealership sales as delineated herein.

    Nissan Maxima SV Colfax WI 54730

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