As a shop owner, ideally, you’ve planned out your succession years in advance. By doing so, you have the opportunity to generate the value potential buyers are looking for, say leading industry experts.
Someone looking to buy your operations wants a business that’s well-run. Otherwise, you won’t get nearly what you expect, they warned.
“I find most of the shop owners aren’t planning for their retirement soon enough. They’re leaving that until, I believe, the last minute to make the plans on how they’re going to do their retirement,” observed Diane Freeman, executive director of the Automotive Aftermarket Retailers of Ontario, during a recent webinar hosted by AutoLeap.
But those who are thinking ahead, noted Cecil Bullard, chief executive officer of the Institute for Automotive Business Excellence and RLO Training, are being multi-shop organizations. Owning five, six, or seven shops creates a bigger multiplier for a potential buyer as opposed to the shop owner who has just one outlet.
“We have a lot of shop owners right now that are expanding their businesses with the idea that private equity in five years, seven years, 10 years is going to come in and buy at a higher rate,” he said.
He works with some private equity companies that want to invest in the automotive repair space. They’re certainly not looking for a mom-and-pop shop that doesn’t run well. They want to see high margins and efficiency.
“They’re really looking for an organization where the owner is not necessary and the organization runs it more like a franchise model than a mom-and-pop shop,” Bullard explained.
But when looking to grow your own operations, beware of bargain basement deals.
“There are shops on the market right now … that are poorly ran and buy it for 10, 20 cents on the dollar. You’re not really buying it for 10 or 20 cents on the dollar, you’re buying it for what it values at,” Bullard said.
There isn’t much value there because the margins aren’t good, the systems and processes aren’t in place and all other things a good shop values don’t exist.
“And so at the end, we have a lot of guys that are just looking at it and going, ‘I’m just getting out. I’ve saved a little bit of money, I’ve got my social security check, and I’m going to get out,’” Bullard said of those shops.
But proper planning to create value and have a meaningful exit requires upwards of a decade of planning an exit strategy — and pulling it off correctly.
“And unfortunately, many … have not really planned their exit strategy,” Bullard said, underscoring Freeman’s earlier point. “It can be the difference of several hundred thousand dollars, or even a million … So if you haven’t planned it, and you’re going to get out seven years from now, five years from now, you need to do it now and get it done.”