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By Bob Cooper If you speak with most shop owners they’ll tell you that they think their shop is worth x amount of money. Ask them how they came up with that number, and they’ll tell you it’s based on what they heard another shop sold for, or it’s predicated on their annual sales. But if you really want to know what your shop is worth, first of all, forget everything you’ve heard about “goodwill” and the fact that you have thousands of names in your database. That’s icing on the cake, but it’s not something a buyer can take to the bank. And although there is some value associated with some franchise names, there are two things that are most important to a buyer: the “tangible assets” and the “income history.”
Tangible assets are things like real estate, cash in the bank, secured receivables, inventory and equipment. To put it another way, these are the assets that buyers could turn into cash if they had to. When you’re establishing the value of your inventory and equipment, bear in mind that the actual appraised value may very well be far less than what you originally paid. So tangible assets are always number one.
In regard to “income history”, we all know that past performance is no guarantee of future performance, yet the substantiated income history of a company is what buyers can use to forecast earnings. And don’t forget: The amount of money the “company” made does not include any income you’ve drawn out of the company as a salary. The company’s income is the amount remaining after all expenses, including your salary, have been considered.
So imagine you’re looking to buy a shop, and let’s say the tangible assets are worth $400,000. In addition, let’s say the shop has a history of generating $100,000 in annual income after all expenses, and let’s say the owner has been drawing a salary of $80,000. So if you were to buy that shop, how much would you be willing to invest? Well, only you can answer that question, but I hope you take these 6 points into consideration:
1. If you were to liquidate after you purchased, how much could you sell the assets for? I call this the “street value” of assets.
2. How long has the company been in business, how long have the key employees been with the business, and what’s the probability that these key employees will stay on once you buy?
3. What is the probability of the company continuing to earn the same $100,000 in annual profits, and for how long?
4. In regard to the $80,000 salary the owner was taking, would you be willing to do what he or she does for the company for the same amount? Or will you be able to hire someone to do that job for the same or less?
5. If you were to invest the same amount of money in any other business or investment vehicle, would you receive a better return?
6. What are the terms of the purchase price? You may be better off to pay a higher price in return for a lower down payment, good financing rates and a non-compete.
So, how do you establish the value of your business? Not by the icing (goodwill and number of names in your database), but by looking at it through the eyes of both a banker and a buyer. Since 1990, Bob Cooper has been the president of Elite, a company that strives to help shop owners reach their goals and live happier lives, while elevating the industry at the same time. The company offers coaching and training from the industry’s top shop owners, service advisor training, peer groups, along with online and in-class sales, marketing and shop management courses. You can learn more about Elite by visiting www.EliteWorldwide.com, or calling 800-204-3548.
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This is an exclusive invitation to all AutoShopOwner members! You are invited to Elite's Employee Management Made Easy webinar on Tue, Feb 13, 2018 1:00 PM - 1:45 PM EST! Join Elite at this powerful course and you’ll see just how easy it is to improve employee morale, drive up productivity, and increase your profits. During this webinar you will learn… the key fundamentals of employee management proven tips on how you can improve employee morale how to deal with the most difficult employees
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Very interesting, almost seems to good to be true...
Would like any feedback positive or negative.
Is the customer information safe?
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I want to take this time at Thanksgiving to say thank you to all AutoShopOwner members. We have a lot to be thankful for and ASO would not be the great sucess if it were not for all the amazing members and the contributions you make to the forums. From the very start of the ASO, the goal was to raise the level of the auto repair industry and to help each other through the day today operations of running a repair shop. We have done that a more! And there is more to come in the future! From my family to yours, Happy Thanksgiving! Joe Marconi
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The Virginia Automotive Association lobbies the Virginia legislature continuously in defense of our industry. They are the ONLY organization that does so. They are able to do this only through the participation and membership of shops like yours statewide. The group's current initiative is to obtain a long overdue increase in the state inspection fee. Your help is needed on this and other issues that come up before the politicians in Richmond. VAA has been supporting Virginia independent shops behind the scenes for 50 years. Today they need your support in return. You can sit around and grumble about only getting $15 to do a 30 minute inspection or you can work to change it. I urge you to visit the Association website and learn more, then go to the membership page and sign up! The membership benefits alone more than cover the membership fee and think about how an inspection fee increase could impact your bottom line. If you would like to actively participate in this effort, call or e-mail the association's Executive Director, Steve Akridge and volunteer or just join! Thanks, Mark Anderton
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