Good will, competitive intangible assets, brand image and reputation suggest a process is followed consistently at a dealership.
They are powerful qualities that can represent the greatest part of a dealership's value proposition.
Valuation is the process of estimating the market value of a financial asset or liability.
One defining source says: “Valuations can be done on assets such as business enterprises or intangible assets. Valuations are required in many contexts including merger and acquisition transactions, and in litigation.”
Not much specifically about a dealership's brand or reputation. But wait, the “litigation” part. Can't forget litigation and the irreparable harm it can do to a dealer's “intangible assets.”
In dealership acquisitions, store valuations tend to include rules of thumb that rely on financial transactions generally remote from the deal at hand. Your dealership valuation consultant relies on these to build an argument for a specific financial figure.
That helps, but ultimately dealers have to sell the intangible value of their dealership.
According to Wikipedia, it's usually the discount or capitalization rate used to determine the net present value of the expected returns of a business.
Generally speaking, the discount rate may be defined as the return on investment necessary to attract investors, given the risks associated with that investment.
The discount rate is composed of two elements. One is the risk-free rate, which is the return an investor would expect from a secure, practically risk-free investment.
The second is a risk premium that compensates an investor for a relative level of risk associated with a particular investment in excess of the risk-free rate.
But selling a dealership to someone that has been in the business requires more than just relying on the financials.
It also requires a “story.” The story of the intangible is what really sells the dealership.
What if you could build that mind share, that passion, that story clearly, quickly and with little effort? Read on.
Dealer risk stems from lack of process and oversight in meeting regulatory requirements in procedures and practices implemented at a dealership.
Good dealership compliance and risk management are interrelated and represent the bulwarks of protection from liabilities and moments of litigation.
Risk management is a method whereby an organization examines its policies, procedures and operations to:
- Identify assets that may be at risk. These assets include employees, vehicles, buildings or a business' good name.
- Determine what could go wrong with each asset.
- Determine how you will treat the risk.
- Create and implement a plan that makes sense for your organization.
- Monitor the results.
Risk to assets assumes that those assets have a value that, if lost, would adversely affect the dealership's operations and potentially lower its valuation.
Of particular importance and a main character in the “story” is your personnel.
Shiny cars and fancy showrooms cannot cover up individual bad acts or lame “I-didn't-know” excuses.
Personnel have a value or liability that can be difficult to measure, especially if you don't bother trying. In the past, this was par for the course.
However new content-distribution technologies with built-in legal information and training can help dealers assess such matters.
These new technologies can directly measure the nature of the dealership's compliance effort with clear metrics and exception reports that facilitate ROIs that show value proposition.
Knowing what your employees are doing and most importantly what they are not doing, leads to higher valuations of businesses.
James E. Lawrence develops dealership software and manages compliance software development at Compli. He's at email@example.com.
Questions or comments about this column?
Send us an e-mail at Dealers@wardsauto.com.