Intuitively, most people conclude that the reasons for a dealership valuation should have no impact on what it is worth. Read on to find out otherwise in various situations.

Estate and gift planning are among them.

IRS codes and regulations rely on a standard of value called fair market value. The IRS says that's “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell…”

That takes into consideration all discounts for minority interests and lack of marketability.

But in valuing a minority interest in a dealership (example, you're “gifting” or selling a 5% interest to your child), two U.S. Tax Court cases determine the amount of goodwill that is included in the valuation.

The court says that because the goodwill attaches to the franchise and who owns the franchise rights (in most cases, an individual dealer), shares that are transferred where the shareholder is not the owner are not to be valued by including goodwill.

In essence, the fair market value of a minority interest in a dealership can be far different. Some interesting and highly beneficial results can be obtained.

Other value vagaries include:

Purchases and Sales

The ultimate purpose and facts surrounding the transaction often influence values.

For instance, if the sale is to a consolidator that is seeking a very specific result, a standard of value known as investment value (that is, the specific value of an investment to a particular investor) might apply.

This value is often different than fair market value. It incorporates the impact of related synergies gained in the transaction. It could also be pursuant to the terms of a buy-sell agreement. The agreed value there could differ from what could otherwise be considered fair market value.


Different jurisdictions have different definitions of fair value. Fair value is often viewed as the pro rata interest in a dealership without regard to discounts for minority interest being applied.

For example, if a dealership has a total worth of $2 million, a 20% interest without discounts would be worth $400,000. However, the fair market value of just that 20% could be worth significantly less when discounts are applied.

The courts usually provide instruction.

Shareholder Disputes

Similar to divorce, the courts usually determine what standard of value will apply when stakeholder disputes arise. Fair market value and fair value are usually the two standards most often used.

Using the earlier dealership example, the fair market value of a 20% interest might be $300,000 after applying discounts. That's far different than the fair value of $400,000 for 20% at fair value.

Sometimes, a court will instruct a valuation expert to value a dealership on a liquidation premise. That changes value.

The purpose of the valuation must be fully understood when analyzing the results presented in a valuation report. The valuation expert must determine the reasons for the valuation and if any particular statutes or restrictions apply.

It helps you better understand what your dealership is truly worth.

Don Ray is a senior member of the George B. Jones Dealer Services division of Dixcon Odom, a national accounting and consulting group for dealers. He's at 901-684-5643 and