Repair Shop Advice

November 11, 2019

Most auto repair shop owners don’t start a business to get rich.  They want to be their own boss, to work in a place where employees are respected, and treat their customers like people and not like cash machines.

Every owner, however, reaches a point where the financial value of their business becomes important.  You might be trying to decide whether to open a second and third shop.  You might also be hoping to sell your shop and retire someday.  In these cases, the financial value of your business is an important consideration.

It takes more than strong revenue to make a shop valuable.  Surprisingly, it also takes more than strong profits.  Here are three factors that help to determine an auto repair shop’s financial value.

Accurate Financials

Maybe your business has never missed a pay cycle.  Maybe it’s been providing you with enough to keep your family happy and send the kids to college.  Unfortunately, your potential buyers weren’t around for all of that, and those aren’t the criteria they use to evaluate how much profit they’ll make when they buy your business.

What they want is to see the accounting books – and they want those books to show a consistent trend of profitability, after all expenses are considered.  That means they want books based on accrual accounting, not cash accounting.  Without a few years of well-kept books, the buyer is taking on a heightened profitability risk – and taking that risk means they can’t offer you as much money for your business.

A Business That Runs Without You

What would happen if you took a few weeks off?  Many shop owners have taken very few vacations over the years because they’re terrified of the answer to this question.  They simply don’t have the processes in place to allow the business to function for weeks or months without their presence.

In most cases, however, when you’re retiring, you don’t sell yourself with the business.  If the business can’t make a profit in your absence, that means it has no value without you.  Even if you intend to work for the new owner for a year or two to ease the transition, that’s not always a reality.  Sometimes, unexpected health issues or other factors force a retirement.  You want to make sure that these unforeseen circumstances don’t wipe out the value of your business.

This means that your business needs processes in place to produce a strong profit even when you aren’t there.  Employees need to have the knowledge, and to be empowered, to make good decisions without being able to reach you first.  Businesses that can “run themselves” are far more valuable than businesses that require hiring new management to be profitable.

A Competitive Differentiator

The highest profit auto repair shops have customers who are willing to pay extra for that shop’s services.  There are many reasons that might be the case.  The location might be convenient.  It might seem well-run, and inspire confidence even among new customers.  Your shop might be considered a cornerstone of the community.  You might be the only shop around with technicians who are proficient working on certain makes or models of cars.

If your shop doesn’t have a competitive differentiator, the profit that you’re making is likely to be whittled down over time by other nearby shops.  If the differentiator is you, that’s also not good.  Remember, you’re not generally trying to sell yourself with the company.

If you don’t know what your differentiator is, it’s a great opportunity to improve your shop and your profit margin!  Competitive advantages tend to build on themselves, leading to higher profits, more satisfied customers, and more confident, purpose-driven employees.

Figure out why customers come to your shop.  See if you can find trends among their answers.  Finally, focus on those things, always working to make them better, and tell your employees these are the reasons that customers come back to see them over and over again.  Don’t forget to advertise your superiority in these areas!

To learn how Repair Shop Websites can help your business generate more business, email us at Team_RSW@RepairShopWebsites.com or call us at 855-294-6397.