Financial summary and brief description of North Carolina motorcycle dealership.
The Business A 23-year-old western North Carolina dealership of new and used Japanese motorcycles -- and a pretty big one, at that. (Most shops have sales of less than $1.5 million.) Fifty-five percent of revenues come from vehicle sales, the rest from parts, accessories, and service. Of new-vehicle revenues, 47% come from bikes, 43% from all-terrain vehicles (ATVs), and the remaining 10% from jet skis. One catch: the buyer will have to satisfy not just the seller but the original-equipment manufacturers as well; the sale is contingent upon the approval of each of the OEMs. This dealership has already seen one prospective buyer fail to qualify.
Outlook The past decade was not kind to the ferrous steed. New-motorcycle sales declined 67% from 1984 to 1991, with a similar trend in ATVs. Experts attribute the decline to public perception of safety hazards (real or imagined), especially regarding ATVs, as well as to the recession. A recent pickup in sales may indicate the trend is turning around, but for the next few years insiders expect modest growth at best. That having been said, North Carolina seems to be a particularly good place to sell motorcycles right now; registrations were up 13% in 1992, compared with 2.2% nationally. This shop's gross margin of 23% is slightly below the industry average of 24%, but it's certainly not bad.
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Price Rationale The price includes assumed debt of $220,000 in floor-plan financing, so the up-front cash outlay is $880,000. Experts say a fair multiple to start with is 5 times earnings, not including the owner's compensation. Deducting an owner's salary of, say, $60,000 from earnings yields $238,000, which would produce an expected price of $1,190,000. But the hard assets here don't support such a price. An asset-based retailer like this should have hard assets of about 40% of the purchase price; the net worth of $271,000 (a stated $491,000, less the assumed debt of $220,000) is only 31% of the effective price. To compensate, drop the multiple to 4.5. That would yield an asking price of $1,071,000, which makes this deal look pretty good.
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Pros Decent margins. Strong, consistent sales. All at a fair price. And you could be riding the crest of a resurgence of the motorcycle market.
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Cons Or not. -- Christopher Caggiano
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Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to New South Business Ventures, Asheville, N.C., 704-254-8700. n