Five things to consider if you are thinking about selling your dealership

Written by:
Chanell Turner
CBT News
January 19, 2021

The COVID-19 pandemic has led to significant interruptions in the automotive industry. However, while the move to online sales and additional services like car delivery has been covered at length, others haven’t been widely discussed—namely, dealership acquisitions. According to the Kerrigan Advisors Blue Sky Report, year-to-year dealership acquisition rates were up 16% in the third quarter. While it is normal for dealers to sell their dealerships, the numbers spiked in 2020, and the COVID-19 pandemic likely played an important role in this development.

However, while the numbers are high, the result doesn’t point to a panicked exit. The numbers revealed that the COVID-19 pandemic was a nudge for dealers to do something they may have been planning to do due to several factors like age, favorable market pricing for dealerships, or the inability to take on new mandated projects from OEMs.

Ultimately, the market seems favorable for sellers as well as buyers who are seeking to take over. Are you considering the option of selling your dealership? What should you take into account if you are considering this? Take a look below.  

The Dealership’s Financial Health
Your dealership’s financial health is likely one of the first things you will factor into your decision. You should enlist the help of an accountant and financial advisor to get a firm grasp of your dealership’s financial statements. How is your cash flow? What are your profit and loss statements showing over the past few years? Understanding this information can help you determine if it will benefit you to sell now or wait longer to create more value for potential buyers. While your choice shouldn’t just be based on money, this will be a critical component of your decision.

The Value of Everything Inside the Dealership
Yes, the dealership itself is important, but it’s helpful to understand the value of everything that is inside it that you use to do your business. It would help if you had an idea of the real market value of everything from furniture to equipment. These items will play a role in your general financial analysis, but it’s worth it to consider these separately as they can also be a selling point to attract potential buyers and can figure into how you choose to price your dealership—if you decided to sell.

The Outlook of the Dealership Staff
The livelihood of your staff depends on this decision. Is the new buyer planning to keep your staff, or will they bring in their own team? Are you ready to deal with the possible outcome that your most talented team members may have to find work elsewhere as a result of this choice? Again, you have to make the best decision with the information you have in front of you, but it’s worth it to consider how this change will impact your current staff and teams.

The Emotional Attachment to the Dealership
While money does play a massive part in this decision, it is worth considering how this will impact you emotionally. You have likely spent years building your dealership to become what it is today. Your daily routine revolves around this business and has played an enormous role in your life and identity. It would help if you weighed how this change will affect you and your family emotionally. Are you ready to no longer be attached to this significant part of your life? This is a question you have to explore if you want to sell.

Potential Market Performance
This step is where you want to get into the mindset of the buyer. They will be concerned with your dealership’s current and potential future value and how the market will impact these numbers. Therefore, you need to consider what a buyer would think about your business in its current state. For example, you need to think through these questions:

  • What does the current market look like?  
  • What are the projections for the future of the automotive industry? What is the local market like?  
  • Will there be a potential rise in taxes?  
  • How many competitors are in the area, and how does your dealership currently stack up?  

You need to think about how all these questions and the related factors impact a buyer’s view of your dealership.  

Final Thoughts
Selling your dealership is a huge decision, and it definitely shouldn’t be done without careful consideration. You may find that this is a long way off and something you would not entertain until much longer down the line.

However, you may determine that this is the way you want to go much sooner rather than later. Nevertheless, you have to choose the best decision for yourself, your team, and the business itself. Considering the factors above and running them by a seasoned financial professional can help you choose what’s right for you.

About Kerrigan Advisors

Kerrigan Advisors is the premier sell-side advisor and thought partner to auto dealers nationwide. The firm advises the industry's leading dealership groups, enhancing value through the lifecycle of growing, operating and, when the time is right, selling their businesses. Kerrigan Advisors has represented some of auto retail's largest transactions and advised more of the largest dealership groups in the US than any other buy/sell firm in the industry. Led by a team of veteran industry experts with backgrounds in investment banking, private equity, accounting, finance and real estate, the firm does not take listings, rather they develop a customized approach for each client to achieve their personal and financial goals. In addition to Kerrigan Advisors' sell-side advisory and capital raising services, the firm also provides a suite of consulting services including growth strategy, market valuation assessments, capital allocation, transactional due diligence, open point proposals, operational improvement and real estate due diligence.

Kerrigan Advisors monitors conditions in the buy/sell market and publishes an in-depth analysis each quarter in The Blue Sky Report®, which includes Kerrigan Advisors' signature blue sky charts, multiples, and analysis for each franchise in the luxury and non-luxury segments.—To download a preview of the report, click here.—The firm also releases monthly The Kerrigan Index™ composed of the seven publicly traded auto retail companies with operations focused on the US market. The Kerrigan Auto Retail Index is designed to track dealership valuation trends, while also providing key insights into factors influencing auto retail.—To access The Kerrigan Index™, click here.—To read the—2023 Kerrigan OEM Survey, click here.—Kerrigan Advisors also is the co-author of NADA's Guide to Buying and Selling a Dealership.

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