While there is no secret sauce or secret bullet for buying an auto repair shop or selling one for that matter, there is a little known fact that plays a major role in most successful auto shop sales transactions.
The secret lies in understanding the dynamics of what drives the decision making process of the seller or buyer of an automotive repair center. In a nutshell, if the auto repair shop owner knows what's important to the buyer and the buyer knows what's important to the auto repair shop owner, it becomes more of a cooperative than adversarial process - working toward a result that meets both of their respective objectives, as much as possible. Without knowing this, it becomes a guessing game, and price becomes the focus when deal structure might be more important to both parties.
The best auto repair shop deals are achieved when both the buyer and the seller get what they want. When anyone is buying an auto repair shop the price is a significant factor, but it's not always the most important. Due to the unique needs and wants of the seller and buyer of an automotive service center, the structure of the deal will often trump price. The best deals are when the seller and the buyer each walk away feeling they got the best deal, possible. Whenever anyone sells or buys an automotive repair shop, decisions are based on both subjective and objective factors. Subjective things like intuition, emotions and feelings often weigh as much in the final decision as the objective things.
Objective aspects are measureable like the auto repair shop's sales profitability, auto service history, repair order tracking, sales history, financial management records, key automotive management factors, service writer skills, technician efficiency, proficiency, mechanical and technical skills and quality of their work.
With rare exception, no deal is going to happen unless the shop's profitability and performance numbers support the price and deal structure. Sellers and buyers of automotive repair and transmission businesses both need to perform their due diligence. Here are a few of the objective factors to use when performing due diligence.
- How long has the auto repair shop been in business?
- Is the real estate included or just the automotive repair center business?
- If the auto repair facility leased, can it be assumed, how much time remains and can it be renewed?
- Is the location of the auto repair shop suitable now and long term for an automotive service center?
- What is the auto repair shop's reputation?
- What is the BBB (Better Business Bureau) rating on the repair shop?
- What do the auto repair shop's customers say about their repair experience on internet review sites and other web based forums?
- Does the auto repair shop have a website and how good is it?
- Does the auto repair shop owner have accurate financial records to review?
- Does the business have a quality auto repair software program to track and maintain records? This includes software programs designed specifically for automotive repair and service businesses.
- Automotive service writer software, auto repair order and invoicing software and auto service estimating software.
- Auto shop software that provides tracking for things like leads, car counts, average repair orders, labor hours sold versus labor hours consumed/produced, gross profit including gross profit per hour. (This will be discussed in more detail in the next article.)
- Financial software like QuickBooks or Quicken that integrates with the auto repair shop software program.
- Auto mechanics and technician performance relative to quantity and quality of auto repairs and services performed.
- Automotive software that coordinates with automotive labor guides, technical auto repair information systems.
- Automotive parts research and integrated automated parts ordering capability.
The seller needs to be able to produce meaningful historical data and easy-to-review reports to present a positive and accurate performance profile of the business. The buyer needs to review and interpret the information checking for accuracy, consistency, and identifying key potential areas for improved performance in terms of technical efficiency, sales performance, profitability as well as untapped marketing opportunities.
In closing, one of the challenges in selling an automotive repair business is that the current owner has tried to minimize profits for tax purposes. But the buyer wants to know he's buying a profitable business with upside potential… the more profitable and the greater the upside possibilities the better.
This topic continues in next month's article. How can a seller increase the value of a repair shop and how can a buyer determine the value of an auto repair business.