Used Car Dealership Valuation Multiples
If you are preparing to buy, grow, sell, or secure financing for a used car dealership, understanding its true value is vital. Valuation multiples can provide quick insight on how much a used car dealership is worth. However, finding the right multiples can be complex. For the most accurate results, it is best to receive a business valuation. Business appraisers conduct a detailed assessment of various factors to identify reliable used car dealership valuation multiples. In addition, these valuation experts gather insights on your dealership’s strengths, weaknesses, growth opportunities, market position, and more.
This article highlights some of the most common used car dealership valuation multiples. It is important to remember that these ranges are based on industry averages and may not apply to every dealership. For a tailored value estimate, consult a professional business appraiser.
As a professional business appraiser, Peak Business Valuation values used car dealerships throughout the United States. We can provide you with a used car dealership valuation and answer any questions you may have. Get started today by scheduling a free consultation with Peak Business Valuation below!
What Are Used Car Dealership Valuation Multiples?
Valuation multiples are ratios that compare a business’s value to a specific financial metric such as SDE, EBITDA, or revenue. Valuation analysts use multiples to understand what a prospective buyer might pay for a used car dealership. To determine the most relevant multiples, Peak Business Valuation reviews comparable dealerships that previously sold on the market.
Common Used Car Dealership Valuation Multiples
When valuing a used car dealership, business appraisers often use SDE, EBITDA, and revenue multiples. Each metric offers a slightly different estimate of the dealership’s value. Below, we break down how each multiple works and provide average industry ranges. For more insight, refer to Valuation Multiples for a Car Dealership.
SDE Multiples for a Used Car Dealership
Seller’s Discretionary Earnings (SDE) multiples reflect the financial benefit an owner gains from the dealership. To calculate SDE, valuation experts add items such as the owner’s salary, discretionary expenses, and non-recurring costs to net income. After determining SDE, they apply a relevant market multiple. The SDE multiple is common for small to mid-sized used car dealerships.
Formula: Business Value = SDE × Multiple
Range: Used car dealerships often transact between 1.38x and 4.10x SDE.
Used Car Dealership EBITDA Multiples
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) represents the car dealership’s core earnings before non-operating expenses. This metric is ideal for valuing larger dealerships with more established operations.
Formula: Business Value = EBITDA × Multiple
Range: EBITDA multiples for used car dealerships often range from 1.76x to 5.37x EBITDA.
Revenue Multiples for a Used Car Dealership
Revenue multiples evaluate a business based on sales over the past 12 months. While these multiples can be insightful, they are often less meaningful since they do not account for profitability. As such, valuation experts generally give more weight to cash flow-based multiples like SDE and EBITDA.
Formula: Business Value = Revenue × Multiple
Range: On average, used car dealerships sell between 0.11x and 0.31x revenue.
When performing a used car dealership valuation, Peak Business Valuation applies these multiples in combination with various valuation approaches. This ensures a comprehensive and precise estimate of a used car dealership’s worth. We are happy to assist you if you need a credible business valuation. In addition, we can answer any questions about the valuation process or used car dealership valuation multiples. Schedule a free consultation below to get started!
How to Value a Used Car Dealership Using Multiples
When valuing a used car dealership with multiples, business appraisers also assess industry trends, economic factors, market position, risks, and more. Additionally, weighted averages may be applied to account for irregularities and seasonal fluctuations. Taking these measures ensures all factors are considered in the final value estimate.
To learn more about the valuation process, check out How to Value a Used Car Dealership.
Rules of Thumb for Used Car Dealerships
Industry rules of thumb and valuation multiples can provide a quick, rough estimate of a used car dealership’s value. However, these are simplified tools that often overlook key variables that influence a company’s worth. For the most reliable outcome, consider obtaining a professional business valuation. Reach out to Peak Business Valuation today!
Factors Affecting Used Car Dealership Valuation Multiples
Understanding the factors that influence valuation multiples can help used car dealership owners improve their company’s value and performance. Some key value drivers for a used car dealership include:
- Inventory Quality & Turnover: A diverse, well-managed inventory with strong turnover rates makes a used car dealership more attractive to buyers, promoting higher valuation multiples.
- Sales Team Performance: Dealerships with experienced and skilled sales staff often generate more consistent revenue. This has a major influence on the value of a used car dealership.
- Online Presence: Having an easy-to-find website and positive online reviews can help drive traffic to a used car dealership, increasing its perceived value.
- Effective Cost Management: Used car dealers that minimize operating costs and labor expenses are more profitable. This can help improve used car dealership valuation multiples.
Check out Value Drivers for a Used Car Dealership to learn more..
Conclusion
If you need to understand the value of a used car dealership, valuation multiples are pivotal tools. These metrics can provide a quick estimate of your dealership’s value based on market trends. However, relying on multiples alone may not provide a reliable estimate. To ensure accuracy, it is best to obtain a professional used car dealership valuation.
As a business appraiser, Peak Business Valuation has extensive experience working with used car dealerships. We are here to provide a comprehensive business valuation and address any questions you have. You can start today by scheduling a free consultation with Peak Business Valuation below!
To learn more, read Car Dealership Business Valuations and Valuing a Used Car Dealership.
