How to Sell an Auto Repair Business (3 Step Guide)

June 14, 2023

Read time: 3 min

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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.

👉 Ready to grow your automotive business? [Book a personalized Tekmetric Demo Here]

FAQ

Prasanth Chilukuri understands the challenges that shop owners face each day with gaps in their efficiency and margins, which is why he co-founded Tekmetric with Sunil Patel in 2016.

Vehicle Service Pros published some of Prasanth’s tips for strategically growing an auto repair business with a shop management system like Tekmetric.

You can access his full piece here, or check out some of the highlights below.

Balance Is Key to Making Better-Informed Business Decisions

Shop owners make countless daily decisions that affect their customers, their team, and their business.

Making good business decisions is essential to keeping everyone happy and keeping the lights on in the shop, but how do you know what the right decision is?

According to Prasanth, the key to any successful business is finding the right balance between soft skills like intuition or relationship-building and hard skills like data analysis.

Both types of skills are important, but knowing when to employ each one is the trick to making better-informed decisions and growing your business.

Intuition is useful when shop owners have to make split-second decisions and often goes hand in hand with interpersonal skills. The auto repair industry isn’t just about cars, after all; it’s about people, too.

By learning how to pick up on cues and anticipate the needs of customers, employees, and vendors, shop owners can foster long-lasting relationships that grow alongside their business.

Of course, there’s only one way to know whether your shop is truly turning a profit: look at the numbers and analyze the results. Data can support any hunches you have about the health of your business, for better or for worse, so you can plan accordingly.

But if your shop is still tied to manual methods, gathering key information about parts usage and labor costs is probably not easy or convenient.

Why Manual Methods Just Can’t Keep Up

A shop management system might not be able to make business decisions for you, but it can help shop owners make sense of their key metrics and data. According to Prasanth, looking at the cold, hard facts is essential to boost the efficiency and profitability of the shop.

The science of data might seem contrary to the art of intuition at first, but they’re more related than you might think. As Prasanth describes, data can add support to a shop owner’s intuition or observations and reveal key information that can’t necessarily be gathered from conversations with customers and employees.

Unfortunately, trying to sort through the shop’s data by hand can be exhausting and often means missing family dinners to crunch the numbers after hours. And manually calculating daily, weekly, or monthly metrics can quickly become a headache with much larger room for human error.

Without real-time reporting tools, inventory counts and gross profit can’t necessarily be trusted and will always provide an out-of-date view of your business at best.

Being tied to manual processes for data collection also means being tied to the shop and losing out on valuable face-to-face time with the customers supporting the business.

As a result, shop owners are often left making the difficult decision between nurturing their intuition and building relationships, or focusing on the data and shop profitability when both are essential to the long-term success of the business. With Tekmetric, you can do both.

Get the Full Picture With Tekmetric

Tekmetric is a shop management system that comes fully equipped with business reporting tools within a repair orders software suite.

Tekmetric tracks key performance indicators like employee efficiency, parts usage, and profitability ‘round the clock so shop owners can focus on the more high-level aspects of their business.

Real-time reports are always available with numbers that are already calculated and organized.

A bird’s eye view of the shop gives shop owners the power to tailor their business plan and strategy by:

Adjusting parts and labor matrices to maximize margins
Extending or removing a running promotion
Deciding to add more people to the team
Knowing when it’s the right time to expand the business with new bays or by opening a new location