5 Steps for Selling An Auto Repair Shop – Now or Later
It takes years to build a successful business and preparing for selling an auto repair shop doesn’t happen overnight either. Your automotive shop software helps by providing the numbers and incentives to make the process go more smoothly.
A report by Wilmington Trust shows that COVID-19 led some owners to ‘rush to retire’ due to burnout in 2020. That urgency robbed them of time to prepare their shops for sale and to negotiate better pricing.
Meanwhile, the same report noted that investments in software, such as contactless payments, paid off for 53% of shops. This allowed them to hire more strategic staff, pay people more and buy more advanced technology.
On average, for every $1 of cash flow you generate, you could earn $2 to $3 more when you sell. Ultimately, the more you get when you sell, the more comfortably you can retire.
In other words, a thought-out exit plan really pays off.
‘I’m thinking of selling my auto repair shop’
As soon as you mutter these words, you start a process that can be as daunting as starting up. Thankfully, many entrepreneurs want to expand or get into the auto repair business.
TOf course, you want to reinforce the value you have built up over the years in customer relationships, tools and processes. Therefore you want to sell:
- When your auto repair shop is making money
- When you have 4 to 12 months to negotiate the sale
- Before you hit retire age or reach a health emergency
Whether you’re selling to a family member, a long-time employee or an automotive repair chain, build in lead time. The sooner you identify the potential buyer, the sooner you can gauge if they are the right fit.
How to sell an auto repair business
1. Spruce up before selling an auto repair shop
For starters, think of how you would market your home if it were on the market. Likewise, walk through your shop with fresh eyes and look for anything that looks sloppy. You may need a new coat of paint or to clear out old parts that have piled up.
You may wish to make any changes over time so staff see you improving the shop for their benefit. That way, they don’t panic if they think a new owner will come in and clean house. Keep your plans quiet until the right moment.
2. Get your books in order
Of course, a prospective buyer will be wowed by a clean and orderly shop. However, anyone investing in your business will want to see detailed auto repair analytics that show
the financial condition of your shop.
In particular, possible buyers will seek out sales revenue, car counts, average repair order and productivity within the shop.
While you may have those numbers on paper, the buyer may want it broken down by month or by quarter. Or they may prefer charts or graphs over columns of numbers when selling an auto repair shop.
When you have the option to change how you present those visuals, you make it easier for them to see your success.
Compile all these necessary records:
- detailed financial records
- IRS tax filings or returns
- annual reports showing profit gain or losses
- inventory logs
- lists of vendors
Being transparent shows that you run a reputable, organized auto repair shop that would seamlessly transition to a new owner.
3. Nail down your processes when selling an auto repair shop
Since productivity drives profits, having a smooth-running shop makes it more attractive when selling an auto repair shop. Get up to speed with automotive repair software that integrates with diagnostics, parts ordering, accounting, marketing, payments and other functions.
Too many shops value the personality and personal relationships of the previous owner to bring customers back in for services. When you show them what a well-oiled business you run, they don’t need you there to succeed on their own.
Tap into every tool in your auto shop software to make the most profit for you and the future owner.
How to value an auto repair business
Now that you’ve done the homework to showcase your shop, what price should you ask for your auto repair business?
4. Set a value with experts
According to Shop Owner Magazine, sellers often make the mistake of setting a price too quickly when selling their businesses.You can always drop a price later, but starting low puts you in a corner.
First, set up a time with your accountant or financial advisor to conduct a full business valuation. Together, you can determine and translate the value of your shop to possible buyers.
This appraisal can also reveal some gaps in metrics you need to improve before even listing your shop. You may need to clear some debts or improve productivity with additional staff training. This is a good time to look at your auto parts pricing to see how to boost that revenue stream.
Keep an open mind as you work through each phase.
5. Prepare a business review for buyers
This document will provide key numbers to industry experts and educate those who are moving into the auto repair sector. Using an outside partner, such as a broker or lawyer, shows knowledge gaps that you may think everyone knows.
This also boils a business down to a true value based on quantifiable data, not its history or perceived loyalty. They factor in:
- net sales
- nearby competition
- additional considerations
Even if you know all this, it’s best to hand it over to a professional to package it in a way that speaks to buyers. Then, they set a price based on fair, market, investment or liquidation value, using databases and other calculations.
Shops that use brokers and lawyers typically earn a higher selling price by removing the emotional component. After all, most buyers prefer an established business over a start-up for its customer base and track record of sales.
Finally, always run your business with one eye on the present and the other on the future. Yes, short-term successes win the day, but you’ll also take great pride when you see your shop thriving long after you hang up your tire gauge.
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