Matthew Schwab is the multi-shop owner of Clutch Automotive, with six locations in Houston, Texas. Schwab, who has been in the industry for about 12 years, started with a large franchise as an independent shop franchisee. After selling the business, he worked in the corporate office doing in-store performance coaching, new store sales, and helping shop owners exit their franchises. He started Clutch Automotive in 2020 and offers exit strategy tips for shop owners who may be thinking about selling their shops.
As told to Chris Jones
Exiting your business can be a daunting process–whether you’re selling or passing it along to a trusted family member or employee. However, there are several steps you can take to ensure the transition is smooth and that you’re setting up the next leader for success.
The No. 1 thing to keep in mind when exiting your business is ensuring it can operate independently. I like to compare it to sending your kid off to college: you want them to be self-sufficient, independent and able to make decisions on their own. You've done your job when they don't need mom and dad anymore.
The most profitable businesses are the ones that are truly self-sufficient. You want them generating cash flow without your direct involvement. This means utilizing systems, building a strong team, making sure that the business is self-sufficient, having a strong culture that will go beyond you and implementing web-based or cloud-based automated systems like Tekmetric that allow the business to thrive without you. All of this can set your business up for long-term success, so the new buyer doesn’t have to start from scratch.
Preparing Your Business to Run Without You
As counter-intuitive as it might be, you will know that your business is set up for success when it can run without you. No. 1 is trust and empowerment. People who micromanage often do so because they’ve had success in the areas they manage closely—whether they’ve worked on cars, sold service or managed other aspects of the business. However, the best owners are the ones who trust their teams. They empower employees to try new or different strategies, which can often be better than the owner's way. Even if the team executes 80% of the tasks as you would, a different perspective still opens the door to innovation and improvement. Build a strong team that's bought into your business and the culture, and empower them to run the organization as if it were their own—that’s the first step.
Step No. 2 is measurement and data. Having data and metrics that define success and reviewing those on a daily or weekly basis allows you to objectively assess your business. The longer you can measure performance, the better—and a digital system or shop management system can help you build your records out even further. By measuring overall performance, you start to work on the business, not in the business. By looking at the business as an asset, you can evaluate its performance, identify necessary teaks, and empower your team to implement changes based on those insights.
Managing Money Matters: EBITDA, Debt, and Cashflow
EBITDA is a big number a lot of people use to determine valuation, but ultimately it comes down to understanding the cash flow in and out of your shop. EBITDA stands for: Earnings Before Interest, Tax Depreciation, and Amortization. This measurement reflects the true profit of what the business is generating without all the add-backs. I tell owners looking to sell that if they’re heavily involved in the business—using the business credit card as a personal checking account, for instance—they may have difficulty presenting a clear picture of the business’s profitability to a potential buyer.
As for shops with debt, don’t despair. Debt is a valuable tool to help grow, for purchasing new equipment, increasing your profit. This is also key information to review when it comes to creating a strategy to exit or sell your business—and the earlier, the better. It's powerful to begin with the end in mind. Ask yourself, “How much do I want to take home when I sell this business?” then subtract any outstanding debt from that amount to measure your progress.
The final key element to consider is cash flow. The bottom line on your tax return not just what the financials say, but what your tax return says. Usually, the multiple is built on top of that. I want to know exactly what that owner is taking home and how much cash is being put in the bank to be able to properly value their business.
Keep Exceptional Records
In addition to finances, you must also maintain your performance records for other aspects of the business. I think the No. 1 thing I see in owners is always thinking their business is worth more than it is. To get a full picture of your company’s worth, you need to have clear data and really clean books. There’s a few professionals that can help you: a good CPA, a good bookkeeper, a third-party business valuation, and a good lawyer. Together, these resources can help you clean your books, create your exit strategy, and even review documents related to the selling process.
Meticulously keeping your records and proactively preparing any documents can also ease the process of selling or exiting your business. When your records are well-organized, the process becomes much easier—you’re ready to present everything to the buyer in a clean and prepared manner. Potential buyers or those inheriting the business can see car count trends, rising ARO and stable gross profit margin—all of which are critical for a successful exit strategy. This preparation, along with observing trends and maintaining detailed records, not only helps in managing your business today but also provides a clear and attractive picture for future buyers or leaders.
Inform Your Staff
A strong team significantly increases the value of your shop. To ensure you’re keeping the talent you’ve built, keep them involved in the process as much as possible. When it comes to telling your team that you’ve made the decision to sell, I recommend the earlier, the better.
If you love your team and want what's best for them, you're going to involve them in that process. It creates a smoother, stronger transition. Owners often fear that announcing the sale will cause their team to leave, but if you’ve built a strong team that has a good culture, they're going to love and support what you're doing no matter what—they're going to be excited for you. Building that camaraderie and preparing them for the transition is key.
Grow the Right Culture
In the long-term, you will want to create a culture of continuity that allows the business to continue even after you’ve left, whether you’re retiring or moving on to another venture. First and foremost, your team needs to care about each other and the work. They should take ownership when presented with a new initiative, and they should be empowered to take the ball and run with it.
Team members who love being together have a whole kind of ethos to themselves—they take care of each other. Growing a strong culture isn’t just about setting yourself up for a successful exit; it benefits the business as well. When your team works together and serves one another, you can sense that in a business – and so can both your customers and potential buyers.
Additionally, being customer-driven is crucial. For example, when I am working with shops on their exit strategies, I’ll monitor their customer performance through Google reviews. If a shop has high Google reviews, I know the team is committed to the customer and to providing good service. This gives me a great sense of the shop’s leadership and culture, even without meeting the people involved.
Choose the Right Buyer
What’s more important than money? Legacy. What we leave behind—including our name, culture, and the people we've poured our blood, sweat, and tears into—are a testament to the work we have put into building our business. It’s important to vet your options and select a buyer that is going to keep that culture in place, value the way you've been managing the business—even enhance the work you’ve already done. A good buyer keeps the core elements intact to build up the business even after the founder or previous owner has moved on.
Personally, I've maintained a great relationship with all the owners I've purchased from, and I think that's because we're aligned when it comes to values and staying true to the business’ core qualities. I also want to buy a business from somebody who has a similar culture and values to mine. That concept works in reverse as well. Building a relationship with the person buying your shop is crucial; it’s not just about finding the highest bidder, but ensuring the customers and team you’ve built over the years are in good hands. That’s the right buyer for your business.
Start Today
Developing an exit strategy tailored to your shop’s needs and goals is vital for ensuring a smooth transition and maximizing the shop’s value. Starting the planning process early can allow you to exit on your terms and secure a prosperous future for your shop. By leveraging resources at your disposal, from a great bookkeeper or lawyer to a cloud-based management system, you can create an excellent exit strategy. With a well-crafted exit plan, you can confidently step into the next phase of your life, knowing you have set up your shop for continued success.
