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Originally Posted On: https://blog.brenadv.com/blog/challenges-in-the-sale-of-a-tractor-dealership
When it’s time to sell your tractor, boat, or RV dealership, there are many things you need to consider. Typically, the value of dealerships is based on the quality of the OEM brands the dealership offers. Other factors affecting the valuation of dealerships include the location, amount of service revenue as compared to sales of new products, sales and profits on used units and equipment, quality of management in place to succeed the current owners, and the liquidity and balance sheet requirements of the OEM to provide floor plan financing.
The stronger the OEM brand, the more valuable the dealership is, and it is not something that can be changed easily. The stronger the territorial protection for the dealership, either contractually or geographically, contributes to the value as well. Unique characteristics such as natural borders to protect a dealership from neighboring dealerships with the same OEM can factor into the value calculation.
Adjusting the value of the company based on the OEM brands is difficult, however, there are many things that can be done to enhance the value of a dealership beyond the basic brands that it represents. One of the most basic ways is service revenue as compared to revenue from the sale of new or used products. Service revenue is incredibly valuable because of its recurring nature and the demonstration of strong customer relationships that could result in future sales. A dealership that does not have strong service revenue can focus on growing this area through marketing activities, follow-up with former customers, the addition of mobile service, and using online shopping to sell more parts and accessories.
Understanding the capital structure needs of buyers and the limitations imposed by OEM’s is an important attribute of any advisor. Dealership transactions can be difficult to structure, and experience is needed to navigate the different requirements of the parties. An experienced advisor will know the solutions to get the deal done, at the highest value.
Although the most common contributor to the value of a dealership is the OEM brands sold, there are many other factors to consider in optimizing the value of a dealership. Breneman Advisors is an experienced sell-side and consulting firm with knowledge and expertise unique to this industry. For more information on how to prepare your dealership for sale, please contact us today.