Establish Best Asking Price for Your Auto Shop
Auto repair businesses can be very profitable and rewarding for a savvy owner-operator. They are generally recession-resistant and fairly insulated from new competition due to restrictive zoning laws. Seen as steady income-producing assets, there are many types of buyers seeking to purchasing auto repair companies in South Florida. Whatever your reason for possibly selling your auto repair shop, the first and most important step is establishing the best asking price.
Determine the True Owner Benefit of Auto Repair Shop
The most important part of establishing the best asking price is first determining the true owner benefit of the auto repair business being sold. But how does one define the true owner benefit? A professional business broker will use the proper valuation technique of incorporating the owner’s salary, the owner’s personal expenses that are expensed through the business, depreciation, cash sales, and other adjustments necessary to show the true monetary benefit that a buyer may expect from owning the auto repair shop. A careful review of the financials is always necessary to determine the true owner benefit.
If Owner is Mechanic
- If the owner is a working mechanic in the auto repair shop, then further adjustments may be necessary to the owner benefit.
- The buyer can not typically be expected to be a working mechanic unless the auto shop being sold is small enough that a typical buyer will expect that they will need to be a working mechanic.
- Thus the buyer will need to deduct the expense of replacing a working owner (by hiring a mechanic to replace the owner) from the owner benefit calculation.
- Usually though the seller is the overall manager or service manager in which case no ‘special skills’ are necessarily needed by the buyer.
- The buyer may therefore be expected to replace such a manager-owner and their replacement salary need not be deducted from owner benefit.
Determine the Equipment Value of the Auto Repair Shop
Besides the owner benefit, the equipment value of an auto repair shop is the other major component of determining the best asking price. In general, all physical equipment (except personal tools) are included in the sale of auto repair shops. The equipment should be valued at its depreciated value, which allows for a reduced valuation due to the wear and tear (and age) of the equipment. An equipment list should be provided to all buyers so they are clear on what exactly is included. If the equipment is attached to the premises and technically belongs to the landlord, then it should be noted to the buyer. Of course, a well kept auto shop with sufficient parking and bays will heavily enhance the value of the physical assets.
Asking Price for Auto Shops A Multiple of Owner Benefit
The valuation range for auto shops is usually between two to four times the annual owner benefit. At minimum, the asking price should be the depreciated equipment value plus one year’s worth of owner benefit. If the annual owner benefit is about $300,000 or more, then the valuation is usually on the high end simply because buyers are willing to pay more for such better established and profitable companies. Many factors may affect the valuation range including the lease, how long the auto shop has been established, the number of trained mechanics the shop employs, online social media rankings, location, and the degree to which the seller is absentee (the more absentee the higher the valuation range).
Keep The Sale Confidential
- Every potential buyer must be qualified before they are given any confidential information about the auto shop (including its name or specific location).
- The qualification process includes signing a Non-Disclosure Agreement (NDA) which stipulates that the potential buyer may not disturb the auto repair shop’s operations in any way.
- For example, a buyer may not (after signing an NDA) contact any of the shop’s employees or disclose to any of the shop’s employees that the shop is indeed for sale.
- Good mechanics are in high demand, so it is crucial that the seller not lose any of their valuable mechanics to a competitor by such means.
- All meetings between the buyer and seller must also be planned out and agreed upon ahead of time so that the buyer does not disturb or come in contact with any employees.
Ensure A Smooth Transition As Part of Sale of Auto Shop
Before many buyers attain a sufficient comfort level necessary to proceed with the transaction, they must be assured by the seller that there will be a smooth transition after the closing. It is quite common for an auto repair shop’s customers or employees to be ‘loyal’ to the owner. Perhaps customers are used to the owner’s personal touch when it comes to servicing their vehicles or employees have grown accustomed to only working for the owner. Whatever the reason, the seller should properly communicate their intention to make a successful hand-off to the buyer. This normally includes a free 30 day training or transition period where the seller provides some stability and goodwill so the customers and staff may get used to the buyer as the new owner.
The sale of your auto repair shop should be a relatively smooth and prosperous journey with the assistance of a professional business broker.
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.