How to Value and Sell an Auto Repair Business
Consumers rely on experts to provide products and services, and no service is more important than a reliable auto repair shop. The COVID-19 pandemic has changed how many industries do business, but the demand for auto repairs hasn’t gone away.
If selling your auto repair shop is an issue on your plate, consider working with a business broker. A broker knows how to value an auto repair business, and how to find buyers who can purchase your shop.
The State of the Industry
The U.S. automotive repair and maintenance industry generates over $100 billion in annual revenue, and the industry is highly fragmented. The 50 largest companies generate less than 10% of industry revenue. Generally speaking, the industry is separated into maintenance repair shops and collision repair businesses.
Demand for auto repair services depends on several factors:
Complexity: Technology is making automobiles more complex, and fewer car owners can perform repairs on their own.
Age: In the U.S., the average age of a car is about 12 years, and older cars require more maintenance.
Many consumers find repair shops by asking for referrals, and successful auto repair shops drive referral business. Shops that provide great customer service can develop repeat business for years.
Auto repair shops are a labor-intensive business, and shops make far more profit on labor than on parts. The average profit margin is 20-28% on parts and 50-65% of labor. Shops with experienced mechanics are more productive and generate more revenue.
Increasing Business Value
A business broker can help you increase the value of your business before a sale. Here are two ideas to consider:
Average Repair Order Size
When a customer needs a repair, the shop must schedule the visit, inspect the vehicle, explain the issue to the customer, and make the repair. If you can increase the amount of repair work on each car, your shop will be more productive.
Explain all manufacturer-recommended services that are needed when the customer brings a car in for repair. This approach can increase the average order size and boost profitability.
Implement a Marketing Plan
Stay in touch with your customers through email, and offer discounts on repair services. Talk with a marketing firm about using social media to increase the visibility of your business. You can also improve the look of your shop with better signage.
A business valuation can serve as a starting point for negotiating a sale price.
Valuing the Business
Your auto repair business can be valued using several criteria, and a broker understands the differences between each method:
The auto repair shop’s assets (land, building, equipment, tools) are adjusted to fair market value, along with any liabilities (bank loans, amounts owed to vendors). This method values the business as assets less liabilities.
If the shop generates consistent profits, the valuation may be based on a multiple of sales or earnings.
This method values your business using the purchase prices of other auto repair shops, particularly shops of a similar revenue size.
Raincatcher can provide a certified business valuation, which is prepared by a certified, accredited valuation appraiser. The appraiser provides an unbiased report, which removes any potential subjectivity and reflects your company’s true worth.
Operating your repair shop is time consuming, and finding time to work on a business sale can be difficult. A broker can take on much of the work required to sell your auto repair shop.
Other Ways a Broker Can Help
Raincatcher’s brokers have worked on thousands of business sales, and they can help you in a number of ways.
Creating a Marketing Plan
A broker understands the factors that buyers consider, and the broker will put together marketing materials to present your business to potential buyers.
Finding Qualified Buyers
Many business owners invest a great deal of time trying to find buyers, and the process can be frustrating. It’s difficult to know if an investor has the financial means to make a serious offer, and owners may end up spending a lot of time speaking with unqualified buyers.
Raincatcher has a network of accountants and attorneys who work on business sales, and they maintain a network of investors. Your broker will get the marketing information in front of the right people, and reduce the time needed to find a buyer.
Preparing for Due Diligence
Once you find a potential buyer, you’ll need to provide a number of documents for the due diligence process. If you’re working on your own, due diligence can be time consuming, and the buyer may make additional document requests.
A broker can manage the due diligence process for you. They understand what records are required, and they can make decisions about providing additional records to the buyer. The broker will have the buyer sign a non-disclosure agreement, to protect the confidentiality of your data.
Negotiating the Sale Price
Your broker will use the valuation and consider other factors to determine a reasonable sale price. The broker will work with your attorney to protect your interest during the sale negotiation, and close the sale at an attractive price.
An Objective Advisor
Everyone needs help and guidance when making an important decision. Selling your business may be the largest financial decision you will ever make, and the process can feel exhausting. A broker can be your objective advisor, who keeps emotions out of the process. Lean on your broker to provide advice and counsel.
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