Lack of owner dependence is very important.
Auto repair is a customer service oriented business with many owners working the front counter.
What does that mean for you? Well, ask yourself the question: What will happen to the customer base if the owner is not there to greet them?
If you are a “people person,” you may want to work the front desk to better interact with the customers. This way you can ease existing customers into the transition of owners.
About the Building
Having more than one bay and one lift per technician is important, since many times a vehicle is waiting on parts after being torn down, so it's important for the technicians to have more than one work space to move from job to job.
Shops that do heavy line work, such as power train and transmission repairs, also are worth a higher multiple of SDE than shops that just do light duty work only.
Auto Repair Equipment
When looking at the equipment list of a business, make sure the equipment listed is making revenue. Excess equipment that is not often used may increase the selling price but not the profit. Typically a shop location is a large part of the valuation and marketability of the business.
Large volume shops tend to get a larger multiple of SDE. If inventory is valued at less than 15% of the selling price, it is often included. Shops with a high parts or tire volume may have larger inventories, and these inventories would not be included.
Costs, Revenue & Employees
A top tip for auto repair business buyers is to look for a business that has a service writer.
Employee costs should be around 25%; often an owner can trim some fat to boost the business’ Seller’s Discretionary Earnings (SDE).
If the business is an independent service repair shop, the percent to cash flow will normally be higher than if the business were a franchise. A franchise has a royalty fee as an added expense; this lowers the percentage of gross profit to SDE.
The average ticket should be between $400 and $550 per car. A very busy and well-staffed shop can produce on a regular basis $35K per month per technician. Cost of parts and labor should not exceed 20% of total revenues.
$100,000 to $150,000 in annual sales per bay is typical. Any shop that is on the high side of this scale is likely to be significantly more profitable if costs are controlled. Gross rent under $1,500 per month per bay is ideal.
Here are some things to look for:
- Distinguish between Personal Goodwill that goes home with the owner at night (and might not transfer) versus Business Goodwill that will transfer to any Buyer.
- Are any customers tied to a key employee?
- Determine ratio of commercial accounts to retail.
- If the Seller has multiple shops the commercial accounts might leave.
- Most auto service businesses will sell for between 3 and 3.5 times SDE.
- Length of lease is very important if the building and property are not part of the selling price.
- Condition of equipment, cleanliness of shop, and brand or banner will affect local desirability and price. Reputation is also very important.
- Lower SDE if owner is main technician and fewer employees; higher SDE if owner runs business and has techs that do the work.
Final Thoughts and Something to Consider
A very good automotive repair business is difficult to replicate because of the time necessary to build a customer base. Today’s automotive technicians are very skilled people and very difficult to replace.
“Independent service centers installed 88.9 percent of all the 'installed parts' in 2014. Independent service centers have 75.6 percent of all the service bays in the U.S. Parts installed by independent service centers from 2009 to 2014 grew by $12.1 billion, while dealerships declined by $.6 billion. The average age of automobiles in the United States is 11.4 years old. There are roughly 250 million cars on U.S. roads and half of them are more than 11.4 years old—that's a bunch of old cars on the road. I have been tracking this statistic for more than three decades and the average vehicle age has gone up every year."