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BUYING and managing a business can be a tricky exercise, especially a capital intensive operation such as a car dealership.

What is a fair price to pay for a business and how much profit should it generate are questions often asked of business analysts.

“Franchise success comes and goes, but best practice fundamentals do not,” says Steve Bragg director of Motor Industry Services for KPMG.

The sale price of a business typically includes a goodwill component, and goodwill multiples are reportedly high at the moment. Turnover is a factor in goodwill, but high turnover can come at the expense of profit

How then to be certain of buying a car dealership that will return a reasonable profit?

The trick is to equate the price you pay with the value of the business you are buying, says Mr Bragg.

He advocates the use of a range of industry best practice standards, or key performance indicators (KPI), to help measure a dealership’s performance against the best of the best.

“Unlike benchmarks, which tend to be purely financial in nature, subject to the market, and mainly measures of good or bad performance, KPIs are designed to focus on continual top performance,” according to Mr Bragg.

KPMG’s Motor Industry best practice performance card provides:

• The six KPIs to consider for a long-term successful dealership.
• The minimal acceptable performance levels that need to be achieved to deliver an acceptable return on investment, including performance standards for each department.
• The non-negotiable questions to be asked if a dealer is to future proof their business.

Mr Bragg told GoAutoNews Premium that: “In preparing the Motor Industry best practice performance card we have moved away from the traditional benchmark approach of focusing just on outcome.

“We have gone behind the numbers and provided the best practice operational KPIs, actions and activities that drive best practice outcomes,” he said.

“Long-term dealership success is more about establishing the optimal foundational platform. This is where best practice actions and activities with a focus on minimum acceptable KPI creates optimal profit performances.”

According to Mr Bragg the Motor Industry best practice performance card is not an exhaustive list of all the actions and activities that create success, but it is a useful and effective starting point.

By Daniel Cotterill