How to Value an RV Dealership
RV dealerships sell new and used recreational vehicles. Some common recreational vehicles are motorhomes, travel trailers, fifth wheels, and hybrid trailers. RV dealers may also provide repair services and sell RV parts. According to IBIS World, the RV dealership industry has benefited from strong demand in recent years. Moving forward, healthy growth is likely to continue as consumers seek fun alternatives to traveling. As such, now may be a good time to buy, expand, or sell an RV dealership. It is important to note that the RV dealing industry is fragmented and competitive. To succeed, it is helpful to learn how to value an RV dealership.
The most effective way to learn how to value an RV dealership is to receive a business valuation. As part of a business valuation, a valuation expert will calculate the fair market value of an RV dealership you are buying or selling. A business valuation also identifies the risks and opportunities for an RV dealership. This information can help you take your RV dealership to the next level.
Peak Business Valuation, professional business appraiser, values RV dealerships throughout the country. We are happy to provide you with a business valuation for an RV dealership! In addition, Peak can answer any questions you may have on how to value an RV dealership. Start today by scheduling a free consultation with Peak Business Valuation below!
How to Value an RV Dealership
When deciding how to value an RV dealership, business appraisers assess several common business valuation approaches. At Peak, our valuation analysts often utilize the market approach and/or the income approach. Each approach offers a different perspective on the value of an RV dealership. As such, valuation experts will determine which method is best as part of the valuation process. This may include using a combination of valuation methods.
Valuing an RV Dealership Using the Market Approach
The market approach is very common when valuing an RV dealership. This approach is similar to how a real estate appraiser values a property. Real estate appraisers look at similar homes that recently sold in the area to understand a fair value for the property. When valuing an RV dealership with the market approach, valuation experts consider similar dealerships that recently sold. If the business is privately owned, the valuation analyst gathers data from private transaction databases.
Multiples for an RV Dealership
Valuation multiples are a defining characteristic of the market approach. These are financial ratios that measure a dealership’s value in relation to metrics such as cash flow, sales, and earnings. To determine the proper valuation multiples for a recreational vehicle dealer, a valuation expert applies an NAICS or SIC code. The following section highlights SDE, EBITDA, and REV multiples for an RV dealership.
SDE (Seller’s Discretionary Earnings) Multiples for an RV Dealership
- The SDE multiple measures an RV dealership’s value based on its seller’s discretionary earnings. This is a common valuation multiple in small business valuation.
EBITDA Multiples for an RV Dealership
- EBITDA multiples measure an RV dealership’s earnings before interest, taxes, depreciation, and amortization. This indicates the return on investment (ROI) an RV dealership can generate.
REVENUE or SALES Multiples for an RV Dealership
- REVENUE or SALES multiple analyzes the value of the company to the earnings of the RV dealer.
To learn more on how to value an RV dealership using the market approach, see Valuation Multiples for RV Dealerships.
Valuing an RV Dealership Using the Income Approach
Another common valuation approach is the income approach. When valuing an RV dealership with the income approach, a valuation analyst assesses the earning potential of an RV dealership. Additionally, the income approach considers the risks associated with buying or selling an RV dealership. We highlight a few common risks below.
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- Location: The location of an RV dealership has a strong impact on its value. It is important to locate near key markets and suppliers to maximize profitability.
- Financial Performance: Operating an RV dealership can be expensive. To succeed, it is important to have strong financial planning and budgeting skills.
- Inventory: RV dealerships need to have products of high demand in stock and efficiently turn inventory. This promotes an increase in revenue and profitability.
- Competition: The RV dealing industry is competitive. As such, RV dealers must find ways to differentiate from competitors to succeed.
Methods to Value an RV Dealership Using the Income Approach
There are many variations of the income approach. The most common methods are the capitalization of cash flow method and the discounted cash flow method. Both of these methods evaluate a recreational vehicle dealer’s earning potential. Below, we discuss how to value a recreational vehicle dealer with the capitalization of cash flow method and/or the discounted cash flow method.
Capitalization of Cash Flow Method
The capitalization of cash flow method is best for RV dealerships with stable financial histories. When using the capitalization of cash flow method, business appraisers determine an appropriate amount of earnings for one period. The earnings are then divided by a capitalization rate which indicates the rate of return an investor can expect. In addition, the capitalization of cash flow method assesses the risks associated with buying, growing, or selling an RV dealership. We highlight a few of these risks above.
Discounted Cash Flow Method
The discounted cash flow method is ideal if your RV dealership has a strong financial history and/or previously built reliable forecasts. This income approach involves projecting future cash flows over a 3-5-year period. Then, valuation analysts apply a discount rate rather than a capitalization rate to take the time value of money into account. Keep in mind, that the discounted cash flow method is less common since it relies on future cash flow estimates which can be subjective.
Summary
Whether you are buying, expanding, or selling an RV dealership, it is helpful to understand how to value an RV dealership. The most common business valuation methods for valuing an RV dealership are the market approach and the income approach. To learn which method is most suitable for your RV dealership, receive a business valuation. During a business valuation, a valuation analyst will also calculate the value of an RV dealership. This information can help you take the next steps in increasing the value of an RV dealership.
Peak Business Valuation is happy to help! As a professional business appraiser, we value RV dealerships across the country. We are happy to provide you with a business valuation for an RV dealership. For questions on valuing an RV dealership, schedule a free consultation with Peak Business Valuation below!
For more information see Valuation Multiples for RV Dealerships, Valuing a Recreational Vehicle Dealership, and Value Drivers for a Recreational Vehicle Dealership.
