Selling your Business

Auto shop owners may decide to sell their businesses for various reasons, such as a lack of a generational successor, the prospect of retirement, or the intention to capitalize on their years of hard work through a future sale. While selling one's shop can provide a path to a comfortable retirement, it requires careful planning and executing the right steps at the right time. Unfortunately, the decision to sell often comes unexpectedly, and not all owners have a well-defined succession plan in place.

Chris Garman, VP of business development for Sun Auto Tire and Service, has extensive experience in the auto repair merger and acquisition sector. In 2001, he sold his family's shop, which had been in operation for 89 years across nine locations and three generations. When Garman and his business partner/uncle decided to sell their shop to what is now Sun Auto Tire and Service, they faced many of the challenges that he now advises on from the buy-side. Sun Auto and Tire has recently surpassed 500 stores, making it one of the largest auto repair group companies in the country.

Preparation for the Sale

Attractive businesses are those which operate independently, with owners that work on the business instead of in the business. “We seek a business we can acquire and immediately oversee without needing to replace the manager, front office staff or broader team. The team's capability to operate independently of the owners is a critical consideration,” says Garman. 

The financial side is the most crucial factor when preparing a business for sale. Industry experts emphasize removing any personal expenses linked to the business, identifying assets that won't transfer, and developing a structured debt plan, if applicable. Many shop owners seek financial and business experts to assist in this multi-year process. While a solid financial history isn't the sole determinant, it demonstrates continued performance to potential buyers.

Choosing your Buyer: Private Equity vs. Private Individual

Finding the right buyer is intrinsically linked to the goal of business ownership. What is the potential buyer planning to do with your people and your team? What are their plans for your brand? These might seem like decisions that lie only in the hands of the buyer, but for many shop owners, the future of their employees is almost more important than their own and finding a buyer that will maintain that well-being into the future becomes more relevant. 

“There are many potential buyers for your business beyond just strategic acquirers. In addition to larger companies, you may find interest from managers, family members, or smaller consolidators operating in your market,” says Garman.

Identifying the right type of buyer is relevant for the future of your shop. While securing a buyer with the appropriate financial resources, transition plan, and potential leaseback arrangements (if you own the building) is important, understanding what each buyer brings to the table is essential.

As Garman states: "If you can't identify a strategic buyer, that doesn't mean you won't be able to find another suitable purchaser—there is a wide pool of people looking to buy businesses today."

Factors that Influence the Valuation

The valuation of your shop typically starts at three times the profit margin but can increase based on several key factors. Larger shops, multi-store operations, more service bays, higher per-bay billing, and stronger profit margins often lead to higher valuations as a non-linear multiple of the initial metric. 

“The business's location and physical structure are important topics to address. What does the facility look like, and where is it situated?” says Garman. When his team analyzes potential acquisitions for Sun Auto Tire and Service, they take a strategic approach to ensure that shops fit within the territorial and market strategy. This is the case for strategic buyers, which may not align with the objective of other types of buyers.

“Customers typically seek good customer service, high-quality management, a strong reputation, and a reputable brand when choosing a company. Ultimately, these key factors are essential considerations for determining a shop’s value,” says Garman. 

The value a buyer is willing to pay can vary greatly based on these factors, even if several potential buyers are in the same market competing for the same acquisition target. A buyer with a stronger strategic fit may be willing to pay more than a buyer for who’s looking for a specific shop as a market entry. 

The Property

Owners in the best position to sell are those who own the property their business occupies. Ideally, they can lease the property to the new owner. When a shop's valuation ratios are three times its profit or higher, owning the property can significantly increase the business's value.

While owning real estate may be desirable for some shop owners, leasing with long-term contracts may be a more viable option if the costs of both real estate and business operations are prohibitive, as they are in parts of the country. This approach allows owners to focus on growing their enterprise without the financial burden of property ownership. Garman highlights that property control over an extended period signals stability and community trust in the business.

A poorly maintained property can be detrimental to closing a deal, as it may represent a substantial investment for the buyer and deter them. Conversely, a well-kept property is a valuable asset. Many multi-store operators include purchase options in their leases. If you plan to sell your shop in the future, securing the option to buy the underlying property can help you command your desired price.

Private equity-backed buyers often have more capacity to purchase the property along with the business, if this is what the seller wants. But it’s important to choose the right tenant in case a leaseback is going to be the desired option for the property. 

“If you want a long-term lease you will prefer a tenant with a strong credit history and national presence. A national tenant like Sun Tire and Auto could add value to your real estate,” says Garman.

Increasing the Valuation of your Shop

The purchase price is a critical factor for everyone involved. However, if shop owners are willing to consider alternative financing options, such as accepting seller notes or carrying a portion of the note for someone who cannot pay cash at closing, or needs to finance the transaction, this can raise the valuation.

To evaluate a potential acquisition, Garman’s team will often send secret shoppers to stores who will assess the team and their customer service skills. “They look for the little things that shop owners are encouraged to focus on, knowing that attentive staff who take care of customers is a key indicator of the business's success,” says Garman.

“We base our purchase prices on the profitability of the business. However, the people at the counter are what drive in the customers, they're the ones the customers come in and see. If you have a well-run shop, you are likely to have good people working there. The staff and the business's reputation go hand in hand.” 

A good online reputation often stems from having quality staff who provide excellent customer service. They greet customers, address their needs, and ensure they leave satisfied. That customer care is crucial, as it translates to good sales and repeat business—the ultimate goal.

The owner's level of involvement and the extent of family participation in the business can be detrimental to the valuation of the shop. Many buyers wish to make a clean break in the ownership, which can be complicated if family members will remain in the business after the sale. The strength of the management team is another key factor that will impact the valuation.

“Generally, we view positively a business with strong financial performance, a focus on customer service, limited owner/family involvement, and a capable leadership team,” says Garman.

Taking Steps, Planning, and Choosing the Right Time to Sell

For a shop owner who’s starting to think about selling their business, it will likely take them at least a year’s time to prepare. The first step is to get the financials in good shape. “Get your financials in order, going back several years, so a potential buyer can see a three-to-five-year history of your business's performance,” says Garman. This may be the process that takes the longest since many buyers will be looking for several years of performance history. 

If you're involved in the day-to-day operations, you'll need to be able to transition yourself out of the business. Strategic buyers will want to see that you haven't been uninvolved for just a brief period, but rather for at least 12 months. In the case of private buyers this could be less relevant, but that depends on the level of involvement that they plan to have going forward. This demonstrates you can recreate the company's financial success without being the one running the show. “Preparing your business in this way is crucial when it comes time to sell,” says Garman.

Unifying the Brand

Building a strong automotive repair brand is key to succeeding in the industry. The strength of said brand can be helpful when it comes to selling your shop, but it can often depend on the buyer whether that brand is kept alive or merged into another brand. 

“From Sun's perspective, we're buying great businesses and have no intention of destroying value. When a strong brand in a good market is available, we're happy to operate it,” says Garman. 

Sun Auto Tire and Service currently operates over 40 different brands across the country. When they decide whether to change a brand, the key question is the strategic value of that brand for the company in that market. If they already own and operate a brand with higher strategic value in that market, they will likely change the acquired brand and keep our existing one. 

Smaller private buyers may choose to retain the existing brand, recognizing that the value and reputation within the community outweigh the benefits of rebranding. Conversely, buyers expanding on a store-by-store basis may opt to replace the brand with their own. In contrast, multi-store brands like Mango Automotive or AutoStream Car Care follow a unified branding strategy, implementing their own brand across all acquired locations.

As Garman notes, "Consumers care less about a brand's overall image and more about the people behind the counter. Customers often return because of the employees, not the brand itself."