4 Ways to Boost the Value of an Auto Services Firm
Thinking of selling your Auto Service business? These 4 tips can help you get the best price.
The time to own a small business in America has never been better. Major metro areas are growing, with Charlotte’s population expected to double within the next 20 years, housing prices are stable and unemployment continues to drop as large corporation explore the Southeast for new opportunities. The current financial climate has put business owners in a very advantageous position, especially as more buyers flock to the southeast to test their entrepreneurial spirit and try their hand at small business ownership. All of these factors create a ‘Seller’s Market’ and in junction with good financials and steady cash flow, give business owners looking to sell their business a serious edge.
One of the most popular industries for entrepreneurs looking to buy a business is the auto services sector. Auto Service businesses can cover a broad spectrum of offerings ranging from lube and oil change to car dealers to wrecking and salvage. While there are variations between sub-sectors in the auto services industry, profits can range from 5% to as high as 11.5% and experts are predicting a 5% growth increase in the industry. Consumer spending is also up in the auto services industry by 2.2% and as we see personal income continue to rise, more people will be spending more on cars, detailing, and repairs. Due to a variety of franchising options and industry stability, auto service businesses are great for first time entrepreneurs. If you own a business in the auto services industry and have been thinking of selling, the first step is getting a valuation. We have provided the formulas below to serve as a broad guideline to give you an idea of value, but keep in mind that only an experienced business can tell you the true value of your business.
- Auto Body Repair: 2-4x EBITDA, 25-35% of annual inventory
- Auto Brake Services: 30% of annual sales, 4x monthly sales + inventory
- Auto Dealers: 0-10% of annual sales + inventory, 0-5x EBIT, Goodwill =1-3x pretax earnings.
- Auto Detailing: 40-45% of annual sales + inventory
- Auto Glass Repair/Replacement: 45-50% annual sales + inventory, 1.8x SDE + inventory
- Auto Lube/Oil Change: 3x EBIT, 1.5-2.225x SDE + inventory
- Auto Parts & Accessories: 40% of annual sales + inventory
- Auto Rental: 45% of annual sales + inventory , number of cars times $1,000
- Auto Repair: 2-3x EBITDA, 25-30% of annual sales + inventory
- Auto Wrecking & Salvage: 100% of annual gross sales + inventory, 25% times EBITDA
- Car Washes (Full Service): 23x EBIT, 3x SDE + inventory
- AAMCO Transmission: 2-3x EBITDA, 40% of annual sales + inventory
- All Tune & Lube: 20-25% of annual sales
- Car X Auto Service: 35-40% of annual sales + inventory
- Grease Monkey: 50% of annual sales + inventory
- Jiffy Lube: 45-50% of annual sales + inventory
- MAACO Auto & Painting: 40% of annual sales + inventory
- Meineke Car Care Centers: 30-35% of annual sales + inventory
- Precision Tune Auto Care: 35-40% of annual sales + inventory
- Valvoline Instant Oil Change: 50% of annual sales
Now that you have an idea of what goes into valuing an auto service business, you can begin taking steps to improve the value of your business. After selling over 50 auto businesses over the years, we have helped dozens of business owners increase the value of their auto services business prior to selling so that they can secure the highest possible sales price at closing.
Having clean, easily accessible financials is critical when selling your business. Not only will good financials increase your credibility with buyers, but it will also help with financing by showing the SBA that your business is low-risk. Potential buyers will want to see the current financial performance of your business prior to making an offer and this includes expense reports, monthly P&Ls, balance sheets and annual tax returns. Investing in accounting tools such as QuickBooks will help you keep a closer eye on expenses so that you can ensure the business remains profitable, then when you are ready to sell, you’ll already have all of the evidence you need to show buyers that your company is a good investment and a safe bet.
Build a Team
Every business needs a good team to function at its full potential and an experienced staff is an important factor to most buyers. Buyers are interested in transitioning into the ownership role as seamlessly as possible and in order to do that, sellers need to invest in their staff and develop a structured team. Train your staff to ensure that they are fully capable of doing their jobs without constant supervision, then take it to the next level and structure your departments with the same mindset. Make sure all departments supervisors are in control of the department and meeting their goals without your continual intervention or direction. Once you are ready to sell, buyers will be impressed with the ease of transition due to a well-developed staff.
The look and feel of an auto services business is important and investing the time and money into sprucing up your facility prior to listing it is a good idea. Think of it from a client’s perspective; if you had to wait a couple hours for your car to be repaired, the look of the auto shop would matter. The same logic goes for buyers. No buyer wants to purchase a business that requires superficial fixing up. Make sure you freshen up your facility to attract clients now and buyer when you are ready to sell.
Client concentrations are important; they show buyers where revenues are coming from and which customers are responsible. Typically, in the auto services industry, we see two major types of revenue streams; individual clients and commercial clients, such as auto dealers who have their entire fleet serviced. Take a look at your client concentrations to determine the major revenue sources within the company and focus on bringing in smaller accounts to offset these imbalances. We understand that this step takes time and we recommend looking over client concentrations on a semi-annual basis and starting the transitional phase at least 6 months prior to selling.
If you have been thinking of selling your Auto Services business, we hope these tips can help you raise the value so that when the time is right, you will be able to get the highest sales price possible. The first move in selling a business is getting a valuation to see what the true value is. Even if you aren’t quite ready yet, having a professional analyze your business and show you where improvements can be made will allow you to make changes now. After all the hard work and long hours, you owe it to yourself to redeem your sweat equity and sell your business for the highest possible price. At Viking Mergers & Acquisitions, we help hundreds of entrepreneurs like you plan for their future every day. For more information on how you can increase the value of your auto services business, contact a broker at Viking today.