What’s your brand reputation worth? Not as much as you think

Shop owners may be surprised to know that their customer list or business reputation isn’t worth very much on the open market, according to a business advisor who works with the auto repair industry.

Hunt Demarest is an accountant and business valuator with accounting firm Paar Melis, which deals exclusively with the automotive aftermarket. He’s helped many shops expand by buying other shops and helped his clients sell their own shops.

When looking at the valuation of the business, he’s often asked about putting a value on the shop’s good name or the list of clients they have. They figure it’s worth a good amount of money. Unfortunately, he said, it’s not.

Demarest discussed this issue during the session Transitioning Your Business at this year’s Midwest Auto Care Alliance’s Vision Hi-Tech Training & Expo in Kansas City. He painted a picture for the audience: Say a shop owner down the street who’s been around for 50 years and specializes in German cars decides he’s going to close up. He approaches you and offers his client list for $100,000. Are you going to take it?

“Probably not, right? You don’t even need to hear anymore,” Demarest said. “Generally, we never see people paying for intangibles like this outside of assets — because there’s just not any value there. It’s very hard to quantify that value.”

From the point of view of the shop being approached, the retiring owner can’t force all of his customers to go to the other shop. There’s no guarantee any of them will even make the switch. The shop may not even work on German vehicles. And even with the list, there’s a lot of time and effort required for no measurable return.

The shop being approached is better off spending less money and market directly to those customers. Furthermore, once the retiring shop owner closes the door, those customers will be looking for a new place — they may find this other shop anyway with zero effort required.

“And so generally, the reputation is one of those things where it’s gravy,” Demarest said. He further explained that it’s one of those things where, if the buyer is on the fence, then having a good reputation may be something that seals the deal.

Or think of it this way: If a shop has a bad reputation, they probably have bad business and poor numbers.

“And if you have a business with a great reputation and you’re doing all the right things and everyone’s screaming your praises on it, you probably have decent profits” which makes it more attractive to a prospective buyer, Demarest said.