It’s no secret: profitability is the primary goal of all business ventures. All parties want to complete the transaction feeling like they’ve negotiated a great deal. If you are thinking of growing your dealership portfolio through acquisition, you are not alone.
According to the 2024 Blue Sky Report by Kerrigan Advisors, the 2024 buy/sell market grew 10 percent over 2023—setting a new record of 438 transactions completed and a record 697 franchises. For dealers considering growth opportunities, now is an ideal time to take a strategic look at your approach.
Here are 3 tips for increasing profitability of your dealership before and after a deal.
Understand What You are Buying and Selling
Terminology that is familiar to both buyers and sellers is key when negotiating a profitable deal.
Current assets refer to short-term assets expected to be used or sold within a year, such as vehicle inventory, receivables, and parts and accessories. Fixed assets, on the other hand, are long-term assets like machinery, furniture, fixtures, and equipment. Both working capital and the current ratio are useful for evaluating a company’s liquidity. While they are closely related, they differ in their definitions and how they affect a company’s borrowing capacity.
Working capital measures the liquidity available to effectively operate the company, and is generally referred to as net working capital, excluding certain short-term assets such as prepaid expenses and “friendly” receivables.
Current ratio measures a company’s ability to cover its short-term obligations with its short-term assets. A higher current ratio reflects a stronger liquidity position.
Buyers should also consider that manufacturers often require new owners to make substantial facilities improvements as part of the transaction. Some lenders provide construction finance options to help fulfill this requirement.
Choose the Right Banking Team for your Business Goals
It’s important for your business to choose a bank that offers the comprehensive products and services necessary to help dealership owners meet their business growth goals. Your bank should proactively engage in discussions about strategies to help you optimize this essential part of your business. Consider these factors when working with a business banking team:
- Do they understand my business and how transactions need to be customized to meet my business requirements?
- Do they take the time to listen to me and demonstrate an interest in wanting to see my business succeed?
- What options do they offer for managing fees and surcharges? Banks that offer a wide variety of products and services can provide opportunities to reduce costs and earn credits against banking fees. A seasoned financial consultant will keep you informed about the latest regulations and requirements, plus help develop strategies to minimize associated costs.
- How secure are their systems? Your business bank should have state-of-the-art technologies that provide robust security measures and automation tools to help safeguard your assets and transactions.
- Is this a well-established lender that has survived economic ups and downs and consistently remains committed to the automotive industry?
- Where are they located? If you find an ideal financing provider, they can likely work successfully with you anywhere in the United States.
Business owners should be confident in asking their potential financing providers the tough questions to thoroughly assess and choose the right team. Seek a banking partner who is committed to building a strong, trustworthy relationship and can serve as a valuable sounding board as you evolve your business.
Consider a Merchant Surcharge Program
In today’s competitive automotive industry, dealerships are continuously exploring new avenues to enhance profitability while maintaining high levels of customer satisfaction. Passing the cost of processing fees on to customers who choose to pay with their credit cards is one approach dealerships can take to reduce expenses and increase profitability. Credit card surcharge programs offer:
- Lower operating costs. Dealerships can save thousands each month on card processing fees, directly increasing their profit margins by not having to absorb interchange costs.
- Increased margins. Savings from eliminating these fees can be redirected to offset other costs, such as service and maintenance expenses.
Transparent, active communication from the dealership is key to maintaining positive relationships with customers. The customer experience is a factor to consider before deciding to implement a surcharge program. When determining if a merchant surcharge program makes sense for your business, consider these factors:
- Competitor practices. Are other dealerships in your area implementing surcharges?
- State regulations. What surcharging laws and regulations exist in your state?
- Equipment needs. What equipment will be required to automate the surcharge process effectively?
Now is certainly the time to take a strategic look at growing your dealership portfolio via acquisition, and these tips should get you started down a path of increased profitability while also remaining competitive in your market.
