As a car dealership owner, you have likely poured years of hard work into building a business that not only supports your livelihood but also serves as the foundation of your financial future. However, as you look ahead to the next chapter—whether it involves succession, selling, or expand- ing—one critical question often goes unanswered: Do you truly know what your business is worth?
With 80% of a typical business owner’s net worth tied up in their company, understanding its value is not just important, it is essential. Studies reveal that up to 98% of business owners do not have a clear sense of this value. That is where identifying the true value of your enterprise becomes a game changer. This pivotal first step is designed to lay the foundation for protecting what you have built, maximizing value, aligning goals, and ensuring a smooth and successful transition.
Why Business Owners Need the Identify Stage
Without a clear understanding of its value, you cannot make informed decisions about growth, succession, or sale. The Identify Stage focuses on uncovering the current state of your dealership, pinpointing opportunities for improvement, and aligning your goals with actionable strategies. This analysis includes putting an actual value on the qualitative aspects of your business, those intangible components that represent its “blue sky” value.
The “blue sky” number, a critical concept in the car dealership industry, reflects the goodwill and intangible assets that make your business more attractive to buyers. These components often account for the premium value above the tangible assets, making up about 80% of a business’s overall value when an outside third party is evaluating it for acquisition.
This phase involves assessing three critical areas:
- Business Value: Determining the true value of your dealership, including both tangible assets (like real estate and inven- tory) and intangible assets (like customer loyalty, brand reputation, and franchise agreements). This process highlights the “blue sky” number that sets your dealer- ship apart.
- Owner Readiness: Evaluating your per- sonal and financial readiness to transition from the business. For many owners, step- ping away from the business can be as emotional as it is logistical.
- Business Attractiveness: Gauging how appealing your dealership is to potential buyers or successors. Factors like profit- ability, operational efficiency, and market position play a critical role in this assess- ment.
Why This Matters…
The Identify Stage is essential because it provides clarity, reveals gaps, and prepares your business for transition.
- Know Your Value: Most owners overestimate their dealership’s worth. This stage gives you a precise understanding of your business’s true value, including tangible assets like inventory and intangible assets like customer loyalty, employee retention, and reputation—all of which contribute to the “blue sky” premium.
- Align Goals: It ensures your personal goals like retirement or family succession match the readiness and potential of your business. For instance, the goodwill tied to your dealership’s “blue sky” value can significantly impact your financial planning for retirement.
- Fix What is Broken: From outdated systems to high turnover, the Identify Stage pinpoints weaknesses that could lower your business’s value and marketability. Addressing these improves operations, enhances customer satisfaction, and ultimately boosts your “blue sky” number. Stand Out to Buyers: Buyers and investors want profitable, well-managed businesses with growth potential. By leveraging your “blue sky” value—the goodwill, reputation, and customer loyalty you have cultivated—this stage positions your dealership as a standout opportunity.
Real-World Impact
Consider a car dealership owner who believed their business was worth $5 million but discovered through the Identify Stage that its value was only $3.5 million due to inconsistent profitability and high turnover. By addressing these gaps—investing in staff development, diversifying revenue streams, and improving customer experience—they increased their “blue sky” number significantly. Three years later, the dealership sold for $6 million, with a substantial portion of that attributed to the goodwill and intangibles captured in the “blue sky” premium.
Taking the First Step
The Identify Stage of the Value Acceleration Methodology is not just an optional first step; it is the cornerstone of either growth or a successful transition. It provides clarity, aligns goals, and establishes a roadmap for value growth. For car dealership owners, understanding the “blue sky” value of their business can be the difference between an average transaction and a life-changing one. At Twelve Points Business Advisors, we specialize in helping business owners like you identify the true worth of their companies. Our process is built on effectively and accurately obtaining the right information to lay the foundation for strategic decisions and long-term success. Whether you are planning for succession, growth, or sale, our team is here to guide you through every step of the Identify Stage and beyond.
Twelve Points Business Advisors is proud to announce that we have joined the Massachusetts State Automobile Dealers Association. Following the addition of Taylor Duffy to the Twelve Points team, who brings real world experience of having run car dealerships, this was a logical step as we look to bring our broad business coaching expertise to the automotive space. An insightful article written by our very own Dave Clayman will be featured in the official monthly publication of Massachusetts Auto Dealer every month. Jump to page 36 to view his insight in the December edition.