Why picking the right customers matters

Saying yes to every car that rolls into your shop might keep the bays full, but it could be a problem when it’s time to sell the business.

There’s a risk when you let anyone be a customer, said Bryan Stasch, vice president of program and content development at the Automotive Training Institute, during his session, Maximizing Profitability and Return on Equity in Automotive Repair Shops, at this year’s Midwest Auto Care Alliance Hi-Tech Training & Expo.

“Don’t say yes to every car that comes into your shop,” Stasch told the crowd of shop owners. “This is especially important when you’re looking to sell because the buyer will want to know you have a strong customer base.”

He elaborated that welcoming anyone and everyone into your shop means you don’t have a defined or strong customer base. You don’t understand the needs of your market. For a prospective buyer, they’re going to have to do the homework you should have already done when it comes to understanding your market. What you should be doing is having a more focused approach.

Stasch advised attendees to take a hard look at their marketing strategy and customer mix.

“How defined is your marketing strategy? How many of you really dig into the demographics, the psychographics and the geographics of your current customers to find new ones?” he asked.

“Picking great customers for your business, the demographics or the characteristics, the psychographics, that’s how [buyers] think. That’s how they shop.”

Stasch said too many shop owners don’t understand their own market. He’ll suggest a strategy to them, but the shop owner will push back.

“I have people tell me, ‘Well, it won’t work in my market.’ Then I ask them, ‘What do you know about your market? [And they go] ‘Umm, umm, umm.’”

Because this could have an effect on what a shop is worth to a buyer. Stasch gave a snapshot of what a shop might be worth on the open market, suggesting that the consumer goods and service industry could expect a 3.8 times multiplier on their earnings before interest, taxes, depreciation and amortization, commonly referred to as EBITDA.

“So to determine what your business is worth — EBITDA times a three, maybe a 3.5, depending on how well structured your business is.”

The goal, he said, is to build a business that runs smoothly without the owner — not just for a planned exit, but in case of an emergency.

“The objective is to build a well-oiled machine to run without you for lots of reasons. Because part of succession planning is not only talking about ‘How are you going to get your equity on your business?’ or ‘how are you going to exit?’ Succession planning is also going to make sure you’re prepared for an unplanned exit.”

Because there’s a mindset many shop owners fall into: Thinking nothing will ever happen to them.

“One thing gentlemen suck at: ‘I’m going to live forever. I don’t care. I got some chest pains, but give me another cigarette,’” Stasch said.

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