D.T. MURPHY & COMPANY

Automobile Dealership Brokerage, Appraisals & Consulting

 

 

Daniel T. Murphy

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Business Valuations


Our analytical approach in determining the overall value of an automobile dealership is based on an assessment of the goodwill value, or as it is known in the automobile industry, the "blue sky" value of the continuing operation of the business in the trade area, as outlined by the vehicle manufacturer. This value is then added to the value of the adjusted net worth of the business.

The most common approach in determining the intangible blue sky/goodwill value is the income approach. Simply put, the dealerships average adjusted net earnings over a period of five years are applied against an earnings multiple or a capitalization rate, which then establishes the blue sky/goodwill value of the business. Adjustments to the dealerships earnings may include excessive owners salary, rent which does not reflect the property at its true market value or LIFO adjustments. Adjustments to the balance sheet of the financial statement must reflect the business assets at their true value. Typical adjustments would be in the used vehicle and in the parts inventories; old receivables should be written down.

In addition, we utilize the National Automobile Dealer Association (NADA) Guide to Valuing an Automobile Dealership, which is a general discussion of various approaches to valuing automobile dealerships, and as such, validates our valuation approach.

Our business valuations are usually used for estate tax, marital dissolution, partnership disputes and other litigation purposes. Additionally, adjustments can be made based upon minority, non-controlling or fractional interest in the dealership business.

Our business valuations are done in accordance with the IRS REVENUE RULING 59-60.

Since all business valuations are unique to the individual dealership, please call for a price quote

Valuation reports generally take two to three weeks to complete.

 

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