Motivation For Achievement

What makes the difference between those people who are very inspired to achieve something and those who are not so determined? Those who do almost everything to excel and succeed by putting in a lot of effort and those who don’t work as hard and for whom it is not that important?

The difference lies in the motivation for achievement.

What is Motivation for Achievement?

It can be defined as

o Having a strong desire to accomplish something

o Striving for a standard of excellence

o Expending effort in order to excel

o Having an appetite to accomplish a difficult result

o Being driven to outperform others

According to research by David McClelland it has been found that people with a high motivation for achievement work harder, are more future oriented, more innovative, more persistent and they desire success much more than they fear failure. An interesting point is also that they attribute success to internal factors (like optimists do) as opposed to external factors (as do pessimists). In terms of choosing their challenge they have the ability to distinguish a suitable task as being challenging but not impossible. This means that they choose their task wisely and therefore experience the satisfaction of reaching their goals. People with a low motivation for achievement interestingly either choose tasks that are too challenging, in which they are more prone to fail, or tasks that are too easy, in which there is not enough stimulation.

Can you train Motivation for Achievement?

Experiments have shown that humans indeed can learn to become more achievement motivated. You can even learn and teach it to yourself.

As with any behavioral change it is a process over time. Firstly, practice choosing tasks or set goals that are at a suitable level: challenging and yet achievable. Secondly you put more focus on and celebrate your successes rather than being focused on and frustrated about your failures. Thirdly you need to practice being persistent.

Which one of the three steps mentioned here do you want to focus on and in which way is it achievable and still challenging for you?

Like the Japanese proverb says: ‘Fall down seven times, get up eight.’

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Definition of Motivation

The definition of motivation is to give reason, incentive, enthusiasm, or interest that causes a specific action or certain behavior. Motivation is present in every life function. Simple acts such as eating are motivated by hunger. Education is motivated by desire for knowledge. Motivators can be anything from reward to coercion.

There are two main kinds of motivation: intrinsic and extrinsic. Intrinsic motivation is internal. It occurs when people are compelled to do something out of pleasure, importance, or desire. Extrinsic motivation occurs when external factors compel the person to do something. However, there are many theories and labels that serve as sub tittles to the definition of motivation. For example: “I will give you a candy bar if you clean your room.” This is an example of reward motivation.

A common place that we see the need to apply motivation, is in the work place. In the work force, we can see motivation play a key role in leadership success. A person unable to grasp motivation and apply it, will not become or stay a leader. It is critical that anyone seeking to lead or motivate understand “Howletts Hierarchy of Work Motivators.”

Salary, benefits, working conditions, supervision, policy, safety, security, affiliation, and relationships are all externally motivated needs. These are the first three levels of “Howletts Hierarchy” When these needs are achieved, the person moves up to level four and then five. However, if levels one through three are not met, the person becomes dissatisfied with their job. When satisfaction is not found, the person becomes less productive and eventually quits or is fired. Achievement, advancement, recognition, growth, responsibility, and job nature are internal motivators. These are the last two levels of “Howletts Hierarchy.” They occur when the person motivates themselves (after external motivation needs are met.) An employer or leader that meets the needs on the “Howletts Hierarchy” will see motivated employees and see productivity increase. Understanding the definition of motivation, and then applying it, is one of the most prevalent challenges facing employers and supervisors. Companies often spend thousands of dollars each year hiring outside firms just to give motivation seminars.

Another place motivation plays a key role is in education. A teacher that implements motivational techniques will see an increased participation, effort, and higher grades. Part of the teachers job is to provide an environment that is motivationally charged. This environment accounts for students who lack their own internal motivation. One of the first places people begin to set goals for themselves is in school. Ask any adult: “What is the main thing that motivates you.” Their answer will most likely be goals. Even the simplest things in life are the result of goal setting. A person may say, “I want to save 300.00 for a new T.V.” Well, that is a goal. School is where we are most likely to learn the correlation between goals, and the definition of motivation. That correlation is what breeds success.

So, as you can see, motivation is what propels life. It plays a major role in nearly everything we do. Without motivation, we would simply not care about outcomes, means, accomplishment, education, success, failure, employment, etc.. Then, what would be the point?

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Engagement Versus Motivation

Some experts advocate employee engagement, others are strong believers in motivational strategies. But one does not necessarily exclude the other. There can be circumstances where even an engaged employee can use some extra motivation. Having an overall engaged team should be the main goal of every leader. Engaged employees are a true asset for every organization, especially in difficult times. There is, however, quite some confusion about the difference between engagement and motivation.

Engagement

Engagement comes from ‘within’. It is having belief in the ’cause’. Engaged people do what they do because they believe it is the right thing to do and not necessarily because there is a reward waiting at the end. A prime example of engagement is volunteer work. There is no payment involved, it takes up a lot of time and it is very often ungrateful work. Yet most volunteers do it with passion and perseverance. Why? Because they believe in what they do. Engagement has everything to do with commitment.

Motivation

Here is where the confusion starts. When we talk about motivation, we distinguish two different kinds: intrinsic and extrinsic motivation.

Intrinsic motivation is in fact exactly the same as engagement. It comes from ‘within’ and it has to do with the joy or fulfillment a certain job or task gives the person, rather than the reward it will bring.

Extrinsic motivation is triggered by external factors. As soon as those factors don’t exist anymore, the motivation will be gone as well.

The opponents against motivation strategies are against extrinsic motivational measures like incentives and reward programs and they are absolutely right. Reward programs are counter productive; they usually have a negative return-on-investment in terms of money, employee satisfaction and retention.

What is there against Reward Programs?

Let me share my own experience with you. I started my career as a sales rep for a company that sold copiers, faxes and printers. As often the case, we got paid a commission on top of our – quite low – base salary. On top of that, the company had a few ‘reward programs’ running. A program for the most sold units in a given period, a program for the most ‘new business’ and a few more like these.

The worst one was the ‘Sales Person of the Month Award’. The one with the most sales in a particular month could hand in the keys to his company car and was allowed to drive the company’s Porsche Carrera the following month AND he got his own parking spot in front of the building.

What do these reward programs bring? Nothing, really. Guess who always won these rewards? Correct, the people who were always in the top already. Guess who didn’t even try to get one of these rewards? Correct again, the ones at the bottom. They knew up front that they would not stand a chance against the top performers. And guess who tried a few times but never got the ‘prize’ and became de-motivated? Right, the people in the middle.

So was it motivating? For sure it was, for the group who didn’t need to be motivated; the top performers. They might have sold a bit more but once you are at the top, the room for improvement becomes smaller and smaller. It didn’t do a thing for the bottom performers. They were ‘untouched’ by these programs. It did do a lot for the group in the middle though. That is the group where every sales manager can ‘score’. They have potential and a lot of room for improvement. And what did it do? Exactly the opposite of what the program was invented for. They knew that they contributed to the company and they saw that they would never get ‘rewarded’ for their contribution. How motivating is that?

I hear some people say already:”Then they should make it to the top! Then they will get the rewards as well!” I can score 110% of my target but if other people score 115%, does that make me ‘average’? No, it doesn’t. No matter how great your group of sales people is, there will always be a number one and a number last. And reward programs will always reward the numbers one, the people who need it the least.

Extrinsic motivators: short-term strategy

Incentives and reward programs ‘motivate’ only for as long as the program lasts or even shorter if the employee feels that he won’t ‘win’.

Suppose you have installed a reward for producing a certain number of your product and suppose that everybody is really trying hard. What happens after the deadline? Exactly. People will fall back to their normal production. To get the same results, you’ll have to install another reward program and so on.

Engagement: long-term strategy

Let’s look at that last example again. Suppose one of your suppliers has delivery problems and therefore your production comes to a halt for a certain period of time and nobody will meet the target for the reward. People that were motivated will not pick up the pace right after the supplier started delivering again, because there is no reward to work for anymore.

There is a group of people who will pick up the pace, despite of the fact that there will be no reward. They have an attitude of ‘let’s see what we can do to make up for the lost time’. They are in the ‘game’ for the ‘game’ and not for the ‘prize’. They are engaged.

Engaged employees have endurance. They will continue to bring the task to a good end, despite external challenges and circumstances. They support the goals, mission and values of the company and being part of the organization makes them feel proud. In general, the quality of their work is better. They want to be able to be proud of what they have done while motivated people are like horse with blinders, trying to get to the finish as fast as possible, no matter how.

Engagement goes deep. That also means that the management of an organization has to create an environment where engagement can thrive and flourish. In my next post I will share my thoughts on what you can and have to do to create an engaged team around you.

Let me conclude with a story I heard that describes engagement the best:

Former U.S. President John F. Kennedy came up with a very bold statement in September 1962: “We are going to the moon.” Not too long thereafter he paid NASA a visit. While he was there. he asked an employee:”What is your job?”. The man answered:”My job is to put a man on the moon.” He turned out to be the janitor.

That is ‘engagement’. No matter what you do, your work is as important as anybody’s as contribution to the mutual goal.

I wish you a lot of engagement.

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Motivation Management Is the Key of Change

During my career, I have learned that motivation is the most important factor of change.

I have seen people who have overcome their addictive behavior only with the high motivation. In addition, I have many people who continue their addictive behaviors despite the fact that they enjoy the various opportunities, such as professional consultants, hospitalizations, participation in meetings of famous recovery groups, and support by good families, friends, and community.

Their motivation is low for giving up their addiction, and their motivation for doing addictive behavior is high. Motivation determines whether one overcomes addictive behaviors or continues them. Therefore, motivation management is the key to change. This is because habit change requires not only an increase in motivation to quit addictive behavior, but a decrease in motivation to continue the addictive behavior.

I think the motivation management includes two basic principles:

1. Ability to raise and lower motivation.

2. Ability to increase motivation while changing.

Ability to raise and lower motivation Source of the motivation, is the need. When a need is activated, it creates a motivation for extinguishing itself.

Needs are activated by attention, too. The more people pay attention to stress and anxiety and how to get rid of them, and pay attention to the enjoyment drug use produces, the more they feel are motivated for using. In contrast, whenever people pay attention to the costs and risks of long-term addiction, the motivation of quitting drugs or addictive behaviors will increase.

“Selective attention” is a simple act and strong technique that it is used during the thousands years by religions and ideologies for motivating their followers. Today, SMART Recovery benefits from this method and uses the Cost-Benefit Analysis (CBA) for enhancing motivation to change.

The CBA has four categories of questions:

1. What do I enjoy about my addiction? What does it do for me (be specific)?

2. What do I hate about my addiction? What bad things does it do to me and to others (give specific examples)?

3. What do I think I will like about giving up my addiction?

4. What do I think I will not like about giving up my addiction?

Answering these questions develops awareness and increases the motivation for quitting. The more people do this exercise, the more they will tend to enhance motivation for quitting.

Ability To Increase Motivation While Changing

Overcoming addictive behavior is a process, not an event. Many people know how painful it can be to tread the path toward change. They want to change their addictive behavior immediately, with no discomfort and no urges, without changing their beliefs and values. Such people are like those who enjoy having reached a mountaintop, but hate mountain climbing; or like soccer players who get pleasure only from winning, not from playing.

They start with the high motivation, but they lose their motivation gradually and the most of them do not reach to their goal. Few people that reach to the end of the path. They go through the entire path with anger and complaints. In contrast, those who enjoy the way their motivation increase quickly. And reach the goal with joy and lightly. Rumi believes that loving the path not only increases the motivation for us, but also carries us to the goal. He has beautifully expressed this fact in the story of a thirsty person.

On the bank of the stream there was a high wall,
painful thirsty person was on the top of the wall.

His obstacle for reaching the water was the wall;
He was in distress for the water, like a fish.

Suddenly he threw a brick into the water:
the sound of the water came to his ear like spoken words.

The water was making a sound, that is to say, (it was crying), “Hey,
what is the advantage to you of this throwing a brick at me?”

The thirsty person said, “O water, I have two advantages:
I will never give up from this work.

The first advantage is (my) hearing the sound of the water,
which to thirsty people is music to their ears.

The other advantage is that, (with) every brick I tear off this (wall),
I come (nearer) to running water.

Anyone is more thirsty on the top of the wall,
He will tear off the bricks more quickly.

Anyone is more love with the sound of the water,
He will tear off the bigger brick from the barrier.

I think the main task of people who want to overcome addictive behavior is learning motivation management. Recovery groups, psychologists, physicians, and other people and organizations involved with addiction treatment would do well to establish an environment for helping clients/patients learn this skill.

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What Is Motivation

Motivation is the characteristic that is required in order to achieve anything in life; without it you will give up at the first sign of adversity. It means to inspire, instigate and encourage a person to do their best. Motivation will compel a person to think “If I can’t, then I must” and will cause them to do whatever it takes to become successful. If you inspire motivation it can change your life. You will be inspired to get what you want regardless of what people tell you that you can not do. I have personally seen people apply the motivation factors in life to get from poverty to a life filled with abundance.

Do you think you possess the quality? Only you can answer this question. Take a honest look at yourself; do you find yourself pursuing your goals everyday? Are you doing something to work towards them regardless of what is going on in your life? If you are then you; then my friend you do possess this characteristic and you will reach all your goals. I wake up at 5:00 in the morning to get started on my goals. I am passionate about reaching all my goals. Do you find yourself doing this or are you making excuses of why you can not work on a goal?

It will give you the passion to begin exploring what it is you really want to do in life, and give you the courage to follow your dreams. If you do not like where you currently are and are living life everyday unhappy and frustrated; it probably is because you do not possess any motivation for what you are currently doing. It is up to you to find out what you would really like to be doing with your life. What kind of lifestyle do you want? What kind of career do you want? Do you actually know what it is that would make you happy and excited about getting up out of bed in the morning?

This is a strong quality for anyone to possess; and you can only possess it when you set a burning desire to be do have something in life. No one can give it to you. It can change a persons life in many ways. It can change the way you think, and when you become involved with personal development and become a much more positive individual motivation will get you out of your negative environment.

It is the fuel that inspires us to reach our goals and achieve what we truly desire. It also allows us to keep getting up and moving forward when we get knocked down. Getting motivated and staying motivated gives us the energy we require to reach our goals in the shortest amount of time possible. It is required to meet our goals and do anything purposeful in life. Without it you will not want to get out of bed, clean the house, walk the dogs or do anything at all. Being successful in life and motivation go hand in hand. When you learn how to achieve motivation for something you truly desire; nothing can stop you from having it. So think about it; what truly motivates you then take action towards it and watch it become your reality.

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Self Motivation and Its Importance

Self motivation is very important. There are several reasons for self motivation being so important in a person’s life. Everyone needs to be self motivated.

These days, with so many challenges and a lot of competition one needs to survive, self motivation works like confidence enhancer. It boosts once enthusiasm and provides energy to work.

Self motivation is known as the most important factor in your life. If you are looking for success in any area of your life, you need self motivation. Self motivation plays an important role in enhancing your self esteem. It cultivates a desire to do something in life. Experts in the past have believed and even proved that when self motivation is combined with self determination, one can easily move mountains and find water in deserts.

There are several things one can get motivated with. People get motivated by their strong belief in the almighty. They can even get motivated by an experience they have had or by any other factor. These things just encourage you to change your perspective in life. One can change in to a better person or a better business person with self motivation.

People usually go through happy and sad times in their lives. When thing go awry, you need to support yourself, your family and people around you. This needs a good amount of energy force in you. When providing support and encouragement to your family and friends, you need to be really strong.

Some people are lucky to have good support in the times of pathos. However, some are left alone and require a lot of courage to survive tough times. At such times, one need to get motivates or motivates oneself. Lack of self motivation at such times can be damaging and even complicate your life further.

Mentioned below are some strong reasons on why you require self motivation:

o Self motivation is extremely important when it comes to accepting challenges and opportunities in life.

o The force of self motivation helps in planning your life and easing the difficulties.

o Self motivation provides a new sense of purpose and direction to your life.

o Self motivation is important to provide enthusiasm in life.

o Self motivation lets you live a fulfilling life.

o You can empower and encourage yourself to face tough times and competition in life with the help of self motivation.

o Self motivations fill you with positive energy and boost your enthusiasm.

o Self motivation is important for your existence. It provides you an identity for yourself.

Motivation is a kind of driving force that encourages an individual to get going. It is a kind of boost to the self confidence, faith and inner conscience of a person. All of us look for some kind of motivation in life. It is almost impossible to face a competition, achieve success of accomplish a goal without motivation.

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Motivation – The 3 Aspects of Human Behavior You Must Know to Succeed

Motivation can be defined in numerous ways, but there are two basic definitions or descriptions. It can be defined as the main reason or reasons that individuals partake in a certain behavior, specifically human behavior pursuant to the study of psychology or neuropsychology. It can also be defined as the driving force that initiates and drives an individual’s behavior. It is the internal energy that propels us to achieve our goals. Typically, it is considered to be a dynamic state of mind not concerned with personality.

There are three aspects of human behavior that motivation is based and founded in:

1. arousal of behavior

2. direction of behavior

3. persistence of behavior

Arousal of behavior relates to a specific thing that activates behavior whereas direction of behavior relates to what is responsible for directing the behavior. Persistence of behavior relates to how the behavior is sustained.

What drives an individual to be successful is referred to as motive. Usually, all motives fall into one of three categories and are considered to be physiological or psychological in nature:

1. homeostatic motives – hunger, respiration, thirst, etc.

2. nonhomeostatic motives – curiosity about the environment, seeking shelter, etc.

3. learned or social motives – achievement, approval, power, social affiliation, etc

In any endeavor that an individual undertakes, motivation (or the lack thereof) is the key element behind the success or failure of the endeavor. It plays a key role in the workplace where the effective performance of an employee is concerned. Management or supervisory personnel have a direct impact and play a significant role in employee motivation in that they employ different motivational techniques to raise productivity levels. It also follows that this has a direct effect on the cooperation levels between the employer and the employee.

Motivation can also be classified as

1. negative or positive

2. obvious or subtle

3. intangible or tangible

Education or learning is also interrelated with motivation and instructors will oftentimes employ motivational techniques to get their students to learn. It can benefit the student by making them more competent as well as encouraging confidence and the ability to solve problems.

Self-motivation has also been classified into two different types:

1. Extrinsic – generated by external factors

2. Intrinsic – generated by internal sensations and is longer-lasting than extrinsic

Self-motivation is considered to be intrinsic in nature, and originates from an individual’s internal drives. It is the basis for overcoming obstacles in the path of achieving one’s goals. Additionally, certain external factors are responsible for driving a person into undertaking a new project or to move in a positive direction. Characteristically, self-motivation is comprised of three factors:

1. beliefs

2. desires

3. values

Since an individual cannot rely on others for motivation, self-motivation has to come from within. It plays a key role wherein the individual gathers the courage and strength to achieve certain goals, and is essential for developing new undertakings or making a positive change in one’s lifestyle. Training programs have been proven to be the best way to educate oneself in order to improve motivation and self-motivation.

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Motivation Theory

The word motivation is coined from the Latin word “movere”, which means to move. Motivation is defined as an internal drive that activates behavior and gives it direction. The term motivation theory is concerned with the processes that describe why and how human behavior is activated and directed. It is regarded as one of the most important areas of study in the field of organizational behavior. There are two different categories of motivation theories such as content theories, and process theories. Even though there are different motivation theories, none of them are universally accepted.

Also known as need theory, the content theory of motivation mainly focuses on the internal factors that energize and direct human behavior. Maslow’s hierarchy of needs, Alderfer’s ERG theory, Herzeberg’s motivator-hygiene theory (Herzeberg’s dual factors theory), and McClelland’s learned needs or three-needs theory are some of the major content theories.

Of the different types of content theories, the most famous content theory is Abraham Maslow’s hierarchy of human needs. Maslow introduced five levels of basic needs through his theory. Basic needs are categorized as physiological needs, safety and security needs, needs of love, needs for self esteem and needs for self-actualization.

Just like Maslow’s hierarchy of needs, ERG theory explains existence, relatedness, and growth needs. Through dual factors theory, Herzeberg describes certain factors in the workplace which result in job satisfaction. McClelland’s learned needs or three-needs theory uses a projective technique called the Thematic Aptitude Test (TAT) so as to evaluate people based on three needs: power, achievement, and affiliation. People with high need of power take action in a way that influences the other’s behavior.

Another type of motivation theory is process theory. Process theories of motivation provide an opportunity to understand thought processes that influence behavior. The major process theories of motivation include Adams’ equity theory, Vroom’s expectancy theory, goal-setting theory, and reinforcement theory. Expectancy, instrumentality, and valence are the key concepts explained in the expectancy theory. Goal setting theory suggests that the individuals are motivated to reach set goals. It also requires that the set goals should be specific. Reinforcement theory is concerned with controlling behavior by manipulating its consequences.

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Electric Car Motors – How Do Electric Car Motors Work?

The electric car is one of the technological wonders that the century has produced. It has challenged the way we look at automobiles and been able to apply ordinary technology to give owners a new way to drive and own a vehicle. For a long time, man has relied on the internal combustion engine for all his automobile needs. This engine which runs on gasoline principally has dominated the world of automobiles until recently.

In these few years, the trend has begun to change. Now, people are looking for electric cars. The reason is simple – they want a cheaper way to drive. No more expensive gasoline. Some also want to have a cleaner car – one that produces less smoke.

The electric car has all the parts of a regular gasoline car except one thing – it has no internal combustion engine. This means no gasoline. Instead of a gasoline engine, it rather has a motor that powers it to move. This motor is powered by asset of batteries. The batteries are powered by been arranged in a row and then their powers combined to produce enough current for the car to move. As the car moves the power is sued up. The batteries can be recharged after the car has made some miles.

Unlike conventional vehicles, the battery will not have to be recharged so frequently. It may take the car up to about 1200 miles before it needs a recharge. For city driving, this may be about a week or two.

Today, electric cars can make about 90 miles an hour; making them comparable to any mid sized sedan that you can find. With time, this speed will increase and the batteries will have a longer life.

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Investing in Car Dealerships – How to Value Them

Most business valuations are driven substantially by the company’s historical financial statements, tempered by other factors such as: location, brand name, management and such. In truth and in fact, the dealership’s balance sheet represents less than half the information necessary to properly value an automobile dealership. The balance sheet is but a starting point from which a number of factors must be added and subtracted in order to determine the true value of the assets.

Valuing new car dealerships has to do with projecting future profits and opportunities based upon the “dynamics” of the particular dealership being valued and of the automobile business itself.

The Internal Revenue Service recognizes that valuations include more than financial statements: “The appraiser must exercise his judgment as to the degree of risk attaching to the business of the corporation which issued the stock, but that judgment must be related to all of the other factors affecting the value.” Revenue Ruling 59-60, Section 3.03.

DEFINITION OF MARKET VALUE

The definition of market value according to the American Institute of Real Estate Appraisers’ Dictionary of Real Estate Appraisal, is: “The most probable price in cash, terms equivalent to cash, or other precisely revealed terms, for which the appraised property will sell in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under duress.” American Institute of Real Estate Appraisers, The Dictionary of Real Estate Appraisal. (Chicago: American Institute of Real Estate Appraisers, 1984), 194 195.

In Revenue Ruling 59-60, the Internal Revenue Service defines “fair market value” as follows: “…the price at which the business would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge and relevant facts.”

The purpose of Revenue Ruling 59-60 is to outline and review in general the approach, methods and factors to be considered in valuing shares of the capital stock of closely held corporations.

The methods discussed in the Revenue Ruling apply to the valuation of corporate stocks on which market quotations are either unavailable or are of such scarcity that they do not reflect the fair market value.

The Ruling goes on to state that no set formula can be devised to determine fair market value of closely held stocks and that the value will depend upon such considerations as:

(a) The nature of the business and the history of the enterprise from its inception.

(b) The economic outlook in general and the condition and outlook of the specific industry in particular.

(c) The book value of the stock and the financial condition of the business.

(d) The earnings capacity of the company.

(e) The dividend-paying capacity. The ability to pay dividends is often more important than a company’s history of distributing cash to shareholders, especially when valuing controlling interests.

(f) Whether or not the enterprise has goodwill or other intangible value.

(g) Sales of the stock and the size of the block of stock to be valued.

(h) The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter. With respect to an individual dealership sale, the best comparable is the amount the public company paid or received for buying or selling a similar dealership, not what the public company’s stock value or earnings multiple, per se, that is reflected on the stock exchange.

In practice, in arriving at the fair market value of a new car dealership, several different formulas have been used:

1. Return on Investment (or earnings valuation) Formula: The value of a business to a particular purchaser based upon a return on investment analysis. This value varies from purchaser to purchaser, according to the purchaser’s investment criterion, and it may or may not reflect fair market value. The National Automobile Dealers Association (NADA) refers to this value as “Investment Value.” A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995, Revised July 2000.

The capitalization rate is determined by the stability of the dealership’s earnings and the risk involved in the automobile business at the time of sale, investment, or valuation. This method is highly subjective as the capitalization rate is based upon the particular appraiser’s perception of the risk of the business; consequently, the lower the appraiser perceives the risk, the lower will be the capitalization rate and the higher will be the price he would expect a potential purchaser to pay for the business.

In short, the capitalization rate is the appraiser’s opinion as to a rate of return on investment that would motivate a prospective purchaser to buy the dealership. Considerations include those specified in Revenue Ruling 59-60, as well as available rate of return on alternative investments.

2. Adjusted Net Worth Formula: Net worth of the company, adjusted to reflect the appraised value of the assets used in the day to day operations of a business, assuming that the user or purchaser will continue to make use of the assets. To this “net worth” value will be added blue sky or goodwill, if any. The “Adjusted Net Worth Formula” is the most common method used in purchasing and selling a new car dealership.

3. Orderly Liquidation Formula. This method values the assets as if all of them had to be sold – not at a “fire sale,” but in an orderly manner and without time constraints. Normally, if the dealership is profitable, some value will still be placed upon goodwill.

4. Forced Liquidation. The lowest of all values, forced liquidation means that all of the assets must be sold at a forced sale such as an auction, creditors’ sale or by order of a bankruptcy court. A bankruptcy proceeding regarding a new car dealership almost never brings goodwill. This might be the most appropriate formula if the dealership has no lease (or only a short term remaining on its lease) and cannot, as a practical matter, relocate.

5. Income Formula. The income formula is basically taking the store’s earnings and multiplying it by an appropriated capitalization rate. The trick here is the definition of “earnings.” In determining “earnings” a perspective purchase could use any combination of the following:

(a) current earnings

(b) average earnings – add the last five years together and divide by 5

(c) weighted average earnings – usually an inverted weight with the current year multiplied by five, last year by four, the year before last by three, four years ago by two, five years ago by one, then adding them together and dividing by 15

(d) cash flow – net income plus agreed add-backs such as depreciation, LIFO, personal expenses, excess bonuses and such

(e) forecasted earnings – future projected earnings discounted to present day value.

6. Fair Value. NADA also refers to a third value in addition to “Market Value” “Investment Value,” which it calls “Fair Value.” NADA describes “Fair Value” as being “…primarily used when a minority shareholder objects to a proposed sale of the company in assessing liquidating damages.” and defines it as: “The value of the minority interest immediately before the transaction to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the transaction and without reference to either a minority or non-marketability discount.”

The NADA guide states: It is not common for auto dealers to run across this particular valuation standard. This author has never used, nor has ever seen this value used with respect to valuing automobile dealerships.

As can be seen in this report, this author in discussing valuations excludes what NADA describes as “Fair Value”.

7. The Greater Fool Theory. The National Automobile Dealers Association publication (A Dealer Guide to Valuing an Automobile Dealership, NADA June 1995), bemuses, in part: “A Rule of Thumb is more properly referred to as a ‘greater fool theory.’ It is not ‘valuation theory, however.” (In its “Valuing an Automobile Dealership: Update 2004” NADA dropped the reference to “fool” and simply states that the theory is “. . . rarely based upon sound economic or valuation theory,” but advises sellers to “Go for it, and maybe someone will be stupid enough to pay [it].”

The considerations for valuing new car dealerships are more complex than those used for valuing most other businesses. Dynamics such as the unique requirements of automobile manufactures and distributors can limit the amount of monies that may be paid for a dealership, regardless of what perspective purchasers may offer to pay for the store.

Therefore, the value of a new car dealership varies based upon the needs and ability of the purchaser and, consequently, the same dealership could have two different values to two different purchaser and both values would be correct.

Thus, our valuation of the subject dealership should be considered in the context and limitations of the facts and history of new car dealership sales as delineated herein.

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