5 Ways to Build Value in an Auto Repair Shop Before Selling
Every auto shop owner needs to be aware of these 5 value-boosting tips.
Auto repair shops are one of the most frequently sought-after businesses for entrepreneurs looking to invest. Due to stability and consumer demand, auto repair shops make great business ventures for first-time entrepreneurs or seasoned business owners. Currently, the auto repair industry is pulling profits at an average of 5% and the industry is expected to grow in 2017 at a rate of 3%. Overall, the industry generates about $100 billion dollars annually and due to a 2.2% increase in consumer spending, that number is expected to increase. If you own an auto repair business and have been thinking about exploring exit options, the first step is getting a professional business valuation. We have provided the formulas below to serve as a broad guideline that will give you an idea of value, but keep in mind that only an experienced business can calculate the worth of your business.
- 25%-35% of annual sales + inventory
- 5x-2.3x SDE + inventory
- 3x EBIT
- 2-4x EBITDA
Now that you have an idea of how value is calculated for auto repair shops, you can begin to analyze ways to increase the value of yours. We have helped dozens of business owners in the auto industry sell their shops and we hope these 5 tips will help you maximize the sale of your business and get the best price possible.
Curb appeal is important when it comes to auto shops. Would you want your car getting worked on at a place that was falling apart? Probably not and neither would anyone else. Curb appeal for auto shops is a lot like curb appeal for doctor’s and dentist’s offices; people are wary of a facility that doesn’t look professional. Additionally, no one wants to wait around an auto shop for a couple hours while their car is repaired if the place is run down. Buyers are looking for businesses that are ready to go and that includes the physical appearance of the business. It never hurts to spend few extra bucks now to spruce up your facility so that when you are ready to list your business, buyers are not put off by the appearance.
No matter what industry you are in, it’s difficult to stay competitive without a web presence and marketing plan. Almost half of all consumers are using the web to find service providers and without a digital marketing campaign, dozens of prospects may be unaware that your shop even exists. To get started on a simple yet effective marketing campaign, I recommend beginning with a basic website. For an auto repair shop, you don’t need anything fancy – just generic information like hours, coupons, services, etc. Next, you will want to claim your social media pages and create posts a couple times a week. Finally, it’s a good idea to claim your page on internet review sites such as Angie’s List or Yelp. By doing this, you can ask customers to review you in a public, online forum which will promote word of mouth advertising, and it will help with your Google SEO rankings. Keep in mind that marketing takes time to generate business; don’t get discouraged while your pipeline is building.
Higher revenues yield higher multiples during the valuation stage so naturally, you’ll want to increase your monthly revenues as best you can prior to selling your auto business. The new marketing plan we just described above will help you build your revenues and ultimately, sell your business for a higher price. Try using social media to get more clients in your doors (or upselling current clients) by offering discounts when people check into your business on Facebook. You could also offer coupons for clients that have liked your Facebook page or coupons that can only be used when purchasing other services. Loyalty programs can also build your revenues and increase client retention. Keep clients coming back by throwing in a free air filter on the 5th oil change or allowing them to take 10% off a break job after 10 oil changes. These types of discounts can keep clients coming to your shop and show buyers that you are actively trying to expand your customer base.
A key factor to boosting value in your business is diversifying your supplier base and negotiating contracts to ensure fair pricing on materials. Expensive parts can eat up your profits and drag down your numbers. By diversifying your product suppliers, you have several options for when you need parts and can shop around if the price is too high or the lead time is too long. Having a varied supplier network will appeal to buyers because it shows them that your shop is always working to keep profits high and costs low, which will reflect in your financials.
Direct Repair Programs (DPRs)
One of the most valuable relationships an auto repair shop can have is with an insurance company through a DPR, or a direct repair program. Direct Repair Programs are when insurance companies contract with auto shops to complete repairs for their clients. DPRs account for the majority of sales for most auto shops and are a fantastic source of dependable revenue. To obtain a DPR, you will need to meet various requirements set by the insurance agency. These requirements often include negotiated labor rates and approved vendors for parts. Once you have met the requirements of the insurance agency, your shop will be added as an approved repair shop and sent insurance jobs. Getting your shop on the list of a couple DPRs will not only boost your cashflow and sales now, but also show buyers that your business is stable and reputable in the industry.
If you have been thinking of selling your car repair shop, 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.