There are many reasons you might want to sell your auto repair shop.
You might be ready for another venture; you might be trying to fund your retirement; or you might just be curious about the value of your business if you do decide to sell.
Whether you're actively in the market to sell your shop, or you just want to know how to value an automotive repair shop just in case, you’ve come to the right place.
How to value your auto repair shop
The industry standard for establishing a sale price for an automotive repair business is to use total owner benefit (TOB) multiplied by four (or TOBx4).
So, if you took home an average of $50,000 a year for the past three years, the price of your business will likely be valued around $200,000. Keep in mind this TOB value does not include property value.
For those who are reading this with the hopes of selling in the near future, that valuation method might seem low to you. And it is.
The good news is that you can go above and beyond the industry standard, and sell your shop for a higher value, if you stay on top of your numbers.
Not only will diligent reporting and good customer service increase your TOB, but you’ll also have more leverage when negotiating offers from buyers.
Here are three steps you can take to improve the valuation of your business and secure the money that you worked hard to earn.
Selling your automotive business
1. Be Tenacious About Gross Profit Margins (GPM)
The old business adage said it best: “It’s not what you make, it’s what you keep.”
Potential buyers know the ins and outs of how to value an automotive repair shop that’s on the market. They’ll want to see what your shop’s gross profit margins (GPMs) are, not your shop’s revenue.
Your shop’s gross profit margins will give them an idea of what you were able to take home—and by extension, what they can expect to be able to take home if they go through with the purchase.
Here are some strategies to start increasing your GPM today:
- Increase prices on your parts or labor. A parts matrix and a labor matrix that’s built into a cloud-based shop management system can help you mark up your prices without sticker-shocking your customers.
- Ensure all cores and unused parts are returned. Reports within a shop management system, such as Tekmetric’s Parts Purchased Report and Parts Usage Report, can give you a clear picture of how much you’re spending versus how much you’re using.
- Cease ineffective marketing campaigns. Tracking the ROI you’re getting from various marketing campaigns by having your service advisors track marketing sources on each repair order can help you pinpoint what’s working and what’s not so that you can put your money where it will yield the best results.
Tekmetric’s various built-in reports can give you a clear picture of what your margins are, so you can keep adjusting your strategy to get even better margins that will impress prospective buyers.
2. Increase Your Average Written Repair Order (AWRO)
In the majority of cases, your AWRO can and should be higher than you think.
Let’s do some quick math. It costs drivers an average of 10 cents a mile to maintain their vehicles. If someone drives 15,000 miles a year, and each mile costs them around 10 cents of wear and tear, that person is looking at $1,500 in repairs each year.
Even if we stay on the conservative side, that person is looking at spending $1,000 on annual maintenance.
When you consider how often each customer visits your shop annually, do those numbers sound in line with your shop’s current AWRO?
By running thorough inspections on each vehicle, your technicians can catch all potential issues, including budding issues that will need to be addressed down the line.
Digital vehicle inspections encourage technicians to give customers a holistic overview of which issues need work immediately, which issues will need work soon, and what’s good as-is. And with these more thorough inspections, your service advisors can maximize their AWRO.
Be careful not to prioritize a high AWRO at the expense of customer trust. One great way to balance AWRO with customer trust is by showing customers what work needs to be done ASAP, and what work can wait.
3. Work to Maintain an Excellent Social Reputation Everywhere
Prospective buyers are going to look at your ratings on various platforms, including Google, Facebook, Yelp, Better Business Bureau, Indeed, and Glassdoor.
Why?
Because buyers want to invest in a shop that has a strong social reputation among customers and employees, and by extension, the broader community.
Buyers might feel uneasy purchasing a shop with bad ratings. They might back out of the sale, or even try to pay less for the purchase, citing the low ratings as a reason why.
But when you have high ratings on these platforms, you’ll have more leverage to negotiate a higher price.
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