Appliance Repair Businesses In Demand
Appliance repair businesses in South Florida include servicing major household appliances such as refrigerators, washers/dryers, dishwashers, microwaves, ovens, and other electrical appliances. Commercial appliance repair businesses maintain and repair restaurant equipment, medical equipment, office equipment, and specialized factory equipment. Air conditioning repair is a major South Florida industry and is valued similarly as more traditional appliance repair companies. Because of the low capital needs, high margins, and recurring nature of the business, many buyers seek to purchase a well established appliance repair business.
Valuing Appliance Repair Businesses
The key to properly valuing an appliance repair business is to properly determine its adjusted owner benefit (or the true economic profits derived by the owner), and then assigning a valuation multiple to the adjusted owner benefit based on the unique characteristics of the business. The typical valuation range is 2-4 x the annual adjusted owner benefit. An appliance repair business with a transferable customer base without a working owner physically doing repairs will receive a higher valuation. Further, an appliance repair business with a large amount of physical assets (typically vehicles) and a growing customer base will lead to an increased valuation.
Determine Adjusted Owner Benefit
Properly deriving the adjusted owner benefit of an appliance repair business is the first step in determining its valuation. By examining the financials of the business (such as profit and loss reports or tax returns), one may establish its annual EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is the pre-tax profits without including non-cash charges such as depreciation and debt expense (which is not transferable to a buyer). Then one must add-back any personal expenses of the owner that flow through the financial statement, the owner’s salary, unreported (but provable) cash, and other expenses that would not be applicable to the buyer. The result is the tentative adjusted owner benefit.
Adjust Owner Benefit for Owner’s Role in Business
Once a tentative adjusted owner benefit is determined, the owner’s role in the appliance repair business must be examined. Many smaller appliance repair companies are operated by the owner who physically performs most or all of the appliance repair work. If the owner also functions as a repair person, then the replacement cost (the cost a buyer would incur for having to hire one or more repair people to replace the owner’s role) should be deducted from the adjusted owner benefit. This will reflect the true economic profits that a buyer would enjoy from the business, and the valuation should be based on this amount of owner benefit.
Is Customer Base Transferable?
The most important question when it comes to valuing an appliance repair business is whether the customer accounts are transferable to a buyer. If the owner is too involved in the business and is personally the only reason customers call for their appliance service needs, then the business will have very little value. Prior to selling, the owner should remove themselves as much as possible from the day to day operations of the business in order to maximize their selling price. Steps include limiting their own role in the field as the main company repair person, de-emphasizing their personal relationships with customers, and having customer calls or emails handled by someone other than the owner.
Transitional Plan Important for Valuation
The best way in which to ensure that the customer base of an appliance repair business is properly transferred after the sale to the buyer is by having a transitional plan in place. A transitional plan (as specified in the purchase agreement) will stipulate the length of time in which the seller will train the buyer after the sale, as well as the type of training and assistance the buyer can expect from the seller after the closing. Customer relationships, employee relationships, vendor relationships, and service contracts with customers (including any outstanding warranties) all need to be transferred to the buyer. In smaller owner-operated appliance repair businesses where the owner is the only repair person, the transition is especially critical since customers may have relied on the owner personally for their appliance service and repair needs.
Factors Affecting Valuation of Appliance Service and Repair Businesses
- Once a properly adjusted owner benefit of an appliance repair business is established, several factors affect the multiple of owner benefit leading to the ultimate valuation.
- If the sales, customer base, and profits of the appliance repair business are growing over time, then a higher valuation will result.
- Growing sales and profits signifies an expanding customer base which should mean growing sales and profits for the buyer as well.
- A large amount of tangible or physical assets will also result in a higher valuation.
- Most appliance service and repair companies have company vehicles (with a limited amount of equipment and tools) that are included in the sale.
- Additionally, trained service technicians (who will stay with the buyer after the sale) greatly enhance the valuation.
- Dependable and reliable service technicians will allow a buyer to service the customer base while also expanding the business to reach new customers.
- Lastly, an efficiently run appliance repair business with proper technology and protocols in place that maximize employee productivity will lead to a much higher business valuation.
- Examples include GPS technology in company vehicles so the owner can keep tabs on service techs, digital invoices, and a streamlined ordering system so parts are easily obtained.
Selling an appliance service and repair company should only be done through the assistance of a professional business broker with experience of pricing and selling such companies. In that way, the correct owner benefit may be obtained as the baseline for the valuation, and the correct multiple of owner benefit may be used based on the unique characteristics of the business.
Give Martin at Five Star Business Brokers of Palm Beach County a call today at 561-827-1181 for a FREE evaluation of your business.