This is part 3 in a series of 6 to be released in consecutive weeks every Friday.
In the first two parts of our series, we looked at the factors influencing the valuation of your auto repair shop and how various aspects of your business can add value in the eyes of potential buyers. Now, in this third part, we'll guide you through the process of preparing your auto repair shop for sale and the key steps to ensure a smooth and successful transaction.
Preparing for Sale
- Know what you are going to do: I have a friend who’s a business broker. He shared with me that he won’t take on a client who does not have a solid plan for their life after the sale of the business. He has lost too many deals at the altar, as sellers realized life as they knew it would be over and they would lose their identity, friendships and purpose.
- Organize Your Financials: Ensuring your financial documents are well-organized, transparent and easily understandable is paramount. Potential buyers will scrutinize your records, so be prepared to provide at least three years of financial statements and tax returns.
- Optimize Operations: Strive to make your shop as profitable as possible. This may mean streamlining operations, reducing unnecessary expenses and boosting sales. Remember, a buyer is purchasing the future earning potential of your business, not its past performance.
- Depersonalize Your Business: If your business is heavily reliant on you, work towards making the shop more independent. Develop your team, delegate responsibilities and ensure the business can function smoothly without your constant involvement.
- Declutter, Clean and Paint: A buyer’s first impression is visual from your website to your waiting room to the shop. Just like selling a house or a car, clean up your shop and show that it’s not going to be a fixer-upper. Nobody wants to spend their first week throwing away your junk and shredding 20-year-old documents!
Valuing Your Shop
Determining an appropriate asking price is crucial. While the factors we've previously discussed will play a key role, you should consider engaging a business appraiser or a business broker specializing in auto repair shops. They can provide an unbiased and thorough valuation, ensuring that you neither undersell nor overprice your shop. As a buyer, I have had lots of frustrations with brokers, but I have seen good ones get owners significantly higher sales prices than the shop owners who try and sell on their own. Just remember they will usually get 10% of the sale price as their fee. There are pros and cons and on whether you should list your business with a broker and you will have to decide what is right for you.
Marketing Your Business
Now, it's time to attract buyers. Whether you're working with a broker or going it alone, your marketing strategy should highlight the strengths and potential of your auto repair shop. Be prepared to discuss your customer base, location, employees and financials. Be very careful as the word can travel fast that you’re selling. Decide ahead of time if you are going to tell your existing staff. I have seen employees become very resentful when they found out the day of the sale. This, too, is a personal decision that can have positive or negative consequences, whichever way you decide.
Don’t get short-timers disease; keep driving sales and profit up until the last day!
Negotiating and Closing the Sale
Once you have interested buyers, the negotiation process begins. Here, patience is key. Remember, both parties want the best deal, so there may be some back and forth. Be prepared for due diligence requests. Once terms are agreed upon, contracts will be drafted and reviewed. Always involve legal help to ensure you understand all aspects of the deal and have experience in buying and selling businesses.
This is not a time to save money with online forms or an attorney without the proper experience! I tell my clients to write their bottom-line number on a piece of paper, seal it in an envelope and save it. When the emotion of all back and forth happens, sellers lose focus, especially if they think they will get more than they thought. Most of the time, the final offer will not be what was on the initial offer due to what the seller finds during the due diligence phase. I tell them to go back to the envelope and read the paper; if their number is hit, it’s a win.
It's common for a buyer to request a transition period where you remain involved in the business to ensure a smooth handover. This period can range from a few weeks to several months, depending on the buyer's needs and the complexity of your business.
Selling your auto repair shop can be complex, but it can be rewarding with the right preparation and guidance. It is never too early to start planning your sale, even if it’s 15 years from now.
Please share your thoughts and experiences with me at [email protected]
Stay tuned for Part 4, where we will talk about financing, as total cash-out deals are the rarest.