How to Sell an Auto Repair Shop

What a buyer is paying for

A buyer is paying for the cash the shop will keep producing after the owner leaves. In a repair shop that cash comes from three places: the car count, the average repair order, and the labor rate the market will accept. A buyer will want to see each of those over time, by month, so they can tell a busy season from a growing business.

The second thing they pay for is the team. A shop with two or three experienced technicians who have been there for years, and a service writer who knows the customers by name, is worth more than the same shop where the owner diagnoses every car. If you are the best technician in the building, a buyer will see that as a risk to price around, and we would rather you see it first. Our post on owner dependency covers how to work yourself out of the critical path before you list.

The third is the customer base. Retail customers who come back for every oil change and brake job are good. Fleet accounts, a local delivery company or a landscaping outfit with a dozen trucks, are often better, because the work is predictable. Buyers will also ask how much of the work comes from one or two of those accounts, and a shop that leans hard on a single fleet should expect questions about what happens if that contract walks.

What makes one shop worth more than another

Shops that sell well tend to have the same profile. The bays are full most of the week. Technicians are certified and paid in a way they understand. The shop management software holds years of repair orders, so a buyer can pull reports instead of taking anyone's word for it. Comebacks are low and tracked. Reviews are steady and recent. The equipment is in working order, and the big pieces, the lifts, the alignment rack, the diagnostic scanners, have been kept up rather than nursed along.

Specialization can help or hurt. A shop known for European cars, diesel work or transmissions can charge more and keep customers who will drive past three general shops to get there. It can also narrow the buyer pool to people who know that work. We look at that trade-off for each shop rather than assuming one answer.

The things that lower value are predictable. Cash jobs that never made it onto the books. Parts markups nobody can explain. A lease that ends in a short time with no renewal option. Environmental questions nobody has looked at. A shop can still sell with any of these, though each one gives a buyer a reason to lower the price or walk.

The records a buyer will ask for

Expect a buyer and their lender to ask for business tax returns, monthly profit and loss statements, a balance sheet, and reports from the shop management system showing car count, average repair order and technician productivity. They will want payroll records and a list of employees with tenure, pay and certifications. They will ask for the equipment list with age and condition, any equipment leases, and the vendor accounts for parts.

They will also want the lease, any fleet or warranty contracts, and your insurance history. If you have a parts supplier program or a franchise or network affiliation, they will want those agreements too. Pulling all of this together before you go to market is one of the most useful things you can do. Our guide to getting financials ready walks through what clean books look like to a buyer.

Make sure the numbers in the management system tie to the tax returns. When the repair orders say one thing and the returns say another, a buyer stops trusting both, and the deal slows down while their accountant works out which is right.

What has to transfer

A repair shop runs on more than its customers. The lease is usually the first thing to check, because most shops rent their building and the landlord's consent is needed to assign it. A buyer's lender will want enough term left on the lease to cover the loan, and landlords take their time. See the lease is part of the deal for how that conversation tends to go.

Then there are the registrations and permits. Most shops hold some form of repair facility registration, and many hold air quality, hazardous waste and stormwater permits for the oil, coolant, solvents and old parts that move through the building. Some of these transfer with the business and some have to be applied for again by the new owner. Rules vary by state and your attorney confirms what applies to your shop. A buyer will also want to know how waste has been handled and stored, and in some deals the buyer or the lender orders an environmental review of the site.

Fleet contracts, extended warranty programs and network affiliations may each need the other side's consent. Read them before you list so you know which ones will need a phone call.

What tends to sink a sale

Most repair shop deals that fail do so for reasons that were visible early. The owner was the shop, and the technicians left when they heard about the sale. The books did not match the repair orders. The lease could not be extended. The equipment needed more money than the buyer had budgeted. An environmental question came up late and nobody wanted to own it.

Confidentiality matters here more than in most businesses. Technicians are hard to replace, and a rumor that the shop is for sale can send one or two of them across town. We market a shop without naming it, and buyers sign a nondisclosure agreement before they see anything that identifies it. Our post on how we market a business confidentially explains the steps.

How to get the shop ready

Start a year out if you can. Clean up the books so that every job runs through the system and the returns match it. Write down the processes that live in your head, from how you quote a job to how you handle a comeback. Put your best technician in charge of diagnosis while you are still there to back them up. Talk to your landlord about renewal options well before a buyer asks. Get the equipment serviced and keep the paperwork. Look at your waste handling and permits with fresh eyes.

When you are ready, we start with a valuation built from your own numbers, then prepare the materials a buyer and lender will expect, and screen buyers before they see the shop. At Business Advisors of America we work with owners from the first valuation through the closing. If you want to see how buyers are likely to look at your shop, the auto repair page is a good place to start, and a short call with us is the next step after that.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.