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Protecting Your Dealership’s Future: The Role of Cyber Resilience in Valuation

Posted on: January 19th, 2023

By Laura Lemco and Hugo Cabello

As a dealer, you may feel like the value of your dealership is out of your control, swayed by the whims of the economy and financial markets. But the truth is, there are internal factors that can have a powerful impact on your dealership’s value. These factors, if managed effectively, can mean the difference between a thriving business and one that struggles to stay afloat.

But what exactly are these internal factors? Simply put, they can include anything that affects the expected benefit streams (such as cash flow) and the risks (“i”) to those benefit streams. These are the inputs to the simplified valuation formula: 

The key to maximizing your dealership’s value lies in understanding and managing these factors to your advantage.  Uncovering those internal and external factors that influence benefit streams and risks is no small feat, but for the skilled appraiser, this is another day at the office.

By way of an example, we will use one internal factor: cybersecurity. There is a lot of buzz about this topic due to the passing of the Gramm-Leach-Bliley Act.[1]  With an increasing number of cyber threats and data breaches, it is more important than ever for dealerships to have strong cybersecurity protocols in place to protect themselves and their customers. Besides the compliance requirements, how might cybersecurity affect the value of your dealership?

A dealership with strong cybersecurity:

Hugo Cabello recommends considering these basics in a cybersecurity assessment:

In today’s business landscape, companies are increasingly seeking partners and investors who prioritize cybersecurity. Effective and documented cybersecurity policies make a dealership more attractive to potential partners and investors. A dealer that proactively builds and maintains effective cybersecurity systems will benefit from decreased risk and possibly increased sales and revenues, impacting both sides of the valuation equation.

Any systems that lead to consistent increases in sales and revenue will, of course, increase the dealership’s value. What often gets overlooked, however, is that improving cybersecurity or other vital internal factors decreases the risk of realizing future benefit streams, which can have an even stronger impact on increasing the value of your dealership. An incremental decrease in risk (the denominator of the equation) will have a greater impact than an equivalent increase in the future benefit streams (the numerator in the equation.)

Contact Laura for a free confidential consultation on how to impact your own valuation equation most effectively!    Laura Lemco is President of Dealership Valuation Services, LLC  [email protected]  (303) 994-6919

For information on how to comply with regulations as they apply to dealerships, please contact Hugo Cabello.  Hugo Cabello is Sales Operations Vice-President of G6 Technologies  [email protected] (571) 888-4434

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[1] “The Gramm-Leach-Bliley Act requires financial institutions – companies that offer consumers financial products or services like loans, financial or investment advice, or insurance – to explain their information-sharing practices to their customers and to safeguard sensitive data.” https://www.ftc.gov/business-guidance/privacy-security/gramm-leach-bliley-act