Selling Auto Repair Shops
Auto repair businesses can be very profitable and rewarding for a savvy owner-operator. They are generally viewed as 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 purchase auto repair companies in South Florida. Whatever the reason for possibly selling an auto repair shop, the first and most important step is establishing the best asking price.
Determine the Adjusted Owner Benefit of Auto Repair Shop
The most important part of establishing the best asking price of an auto repair shop is determining its adjusted owner benefit, or true economic profit derived by the owner. The adjusted owner benefit starts with the company’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) on the financial statement and then incorporates the owner’s salary, unrecorded cash (if proven), the owner’s personal expenses that are expensed through the financial statement, and other necessary adjustments. 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.
- A buyer of an auto shop can not typically be expected to work as a full time mechanic.
- The exception is if the auto shop being sold is small enough that a typical buyer will expect that they will need to be a working mechanic.
- Thus a buyer will typically need to deduct the expense of replacing a working owner (by hiring a mechanic to replace the owner) from the owner benefit calculation.
- If the owner (as a working mechanic) pays themselves a salary, then that expense only should be added back to the extent that it exceeds the owner’s replacement cost.
- Many owners of auto shops serve as a service manager in which case no ‘special skills’ are necessarily needed.
- The buyer may therefore be expected to replace such a manager-owner simply by working in the shop (not as a mechanic).
- In this instance, the owner’s salary is considered part of the adjusted owner benefit.
Determine the Equipment Value of the Auto Repair Shop
Besides the adjusted owner benefit, the equipment value of an auto repair shop is the other major component of determining its value. 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. A well kept auto shop with sufficient parking and bays will heavily enhance the value of the physical assets.
Valuation for Auto Shops A Multiple of Owner Benefit
The valuation range for auto shops is usually between two to four times the annual adjusted owner benefit. At minimum, the asking price should be the depreciated equipment value plus one year’s worth of adjusted 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) have dealings with any of the shop’s employees.
- 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
Most buyers of auto shops will want to be assured by the seller that there will be a smooth transition after the closing. This may be a cause for concern in many instances because some customers or employees of an auto shop may only be loyal to the seller. 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 seller. The seller should clarify that they will give the buyer a training and transition period to provide stability after the sale, and actively assist the buyer in retaining all staff and customers.
Auto repair shops should be properly valued and advertised confidentially. Selling an 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.