Jump to content

How to price business to family/main employee.

Recommended Posts

I started a business idea & funded everything to get the business going. It has boomed faster then I expected, i still own & run the shop from the outside but I have 2 family members that have grown the shop from the sales & service from the inside & have been paid a weekly check plus sales bonus checks above any local shop. I have the idea that over the long haul I will recoop my investment & time. I have told them the more we grow the more you will earn pretty simple plan. The company continues to grow every month so I'm not worried about location & all the other things that go into what is my business worth. My question is if I would sell to 1 of them how would I figure a fair price. Mind you I personally have yet to gain a profit from the business myself. I draw a small check but it goes toward bills that it took to get the company started that came out of my own pocket. My quick simple thought was Equipment+Inventory+ (Net profitx3)= Selling price to walk away. I would like to know others I feel I should gain on taking the risk & putting my personal family finaces on hold, but also feel I don't want to cause family issues that I was trying to cheat a family member that would say the business would be nothing without them.


Link to comment
Share on other sites

5 hours ago, BNC173 said:

 My quick simple thought was Equipment+Inventory+ (Net profitx3)= Selling price to walk away. 


Since I am actively searching for auto shops for sale, I can tell you that is a fair way to value things, provided you have proper accounting to support the profitability claims. I don't mean audited financials; just proper bookkeeping.

Link to comment
Share on other sites

You're concern is fairness.  How better to be fair than to use a 3rd party?    You could pay for an appraisal, which will cover both the business and the real estate.   I have a few samples, both over 95 pages.   They are pricey - mine was $4K.  It looks at the business in multiple ways, such as would the real estate be more valuable with a different business use.   It compares all combinations of business and RE and creates a value.    Probably pricey, but it is an arms-length transaction so it's fair.     Another way to get a value is to go visit your local SBDC (Small Business Development Center) office and ask them for sales comps.  They can provide sales multiples for actual sales that help you with the 3X multiple you suggested.  This won't help with the real estate valuation likely, but it gives you a number.   The SBDC is an arm of the SBA and will help you with these basic queries for free. 

Risk taking:  There's no way to say this without putting my foot in my mouth, because nothing is ever black and white.  This is a statement on perspective.   If it was black and white, I'd say this:   If you are currently giving your family members fair wages for their work, then they are contributing nothing to the startup of the organization.   If they are taking less wages to help start the business, or similar, then they are contributing in some direct manner.   Assuming no:  They are not taking on specific risk, so they would not be entitled to anything (ignoring the many family nuances that might exist).  They may be the best employees in the world and are helping you greatly succeed, but they are employees - not the risk takers.  Therefore, you build a great business and sell a working / proven business to your family members.   Buying a known quantity with a good reputation is immensely valuable to them.  They will appreciate being the ones to continue the business.   Don't feel guilty, feel proud!   

It seems like you are looking for an early exit or maybe family members expectations have been set wrongly.   Why is this troubling you today?    Hopefully, they know your timing on sale (e.g. 3-5 or 10-20 years from now).   By then, with 3X, you'll be walking away with Donald Trump type of money!

Link to comment
Share on other sites

I actually think that is a simple formula and is fair. The 3X earnings might be on the low side if the business is growing fairly rapidly. I'm not sure I would go through the hassle and expense of getting a proper valuation and I know others might disagree. I always look at it as "What I am willing to sell for and what would I be willing to pay?". If the employees were going to buy me out then what would I accept and would I be willing to pay the same to them. I am somewhat in the same boat as I am preparing an exit plan and am working on the agreements. The difference is I own all the buildings, land, and equipment in a separate entity and lease it to the operating company. I will keep that intact for a longer period.  Best thing I did was allowing my manager and lead tech to buy into the operation company at 20% each and financing the deal. They do a great job and manage all the resources well. I really just provide some oversight and coaching and don't get involved in day to day operations. We are currently grooming the next set of owners for the next location. 

I just sold another repair (collision) business and sold the equipment on an appraisal and I kept the real estate and am leasing to the buyer. I actually sold it on 2X earnings as I really wanted out and we were able to close the transaction rather quickly. No doubt I could have held out for more money, I was in negotiations on some other holdings as well as opening up a new repair shop so I was ready to be done with the business. I also negotiated a better lease which is where I will make my money over the long term. Although I will make less money per year, the money is far easier and the funds are electronically transferred each month like clockwork. 

Best advice I received from a friend was to journal all the reasons why I want to sell and every time I had sellers remorse, refer back to the document because the buyer is going to expand and do more business and make even more money. He likened it to my stock trading and selling something early only to see it continue a run up after I sold. Once I started journaling my wife had reminded that I had not been happy with that business and it's been 5 years that I have been wanting to sell while providing me specific instances of things I had forgotten about. I had to write all those things in my journal as well as other things that those prompted me to remember. i felt like the collision business and the time commitments was hampering my ability to grow my general repair shop as I have plans to build additional facilities. 


Good luck with your endeavor.


Link to comment
Share on other sites

  • 3 months later...

I recently sold my business, but ive been trying to sell it for about 2 years. Circumstances meant that I had to figure out how to sell it now, and still turn a profit...without having to resort to the dreaded auction scenario. The solution for me, sell the shop in two steps.  I offered the main shop equipment and the client base at one price, then offered the remaining equipment as a separate sale. In other words, this way I could attract potential buyers who were looking to buy cheaper, only to find out they really needed to step up and buy everything else.  It worked for me.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Have you checked out Joe's Latest Blog?

    • By Joe Marconi in Joe's Blog
      Typically, when productivity suffers, the shop owner or manager directs their attention to the technicians. Are they doing all they can do to maintain high billable hours? Are they as efficient as they can be?  Is there time being wasted throughout the technician’s day? 
      All these reasons factor into production problems, but before we point fingers at the technicians, let’s consider a few other factors.
      Are estimates being written properly? Are labor testing and inspections being billed out correctly? Are you charging enough for testing and inspecting, especially for highly specialized electrical, on-board computer issues, and other complex drivability work?  Is there a clear workflow process everyone follows that details every step from the write-up to vehicle delivery? Do you track comebacks, and is that affecting production?  Is the shop layout not conducive to high production? For example, is it unorganized, where shop tools, technical information, and equipment are not easily accessible to every technician?  Are you charging the correct labor rate and allowing for variables such as rust, vehicle age, and the fact that most labor guides are wrong? Also, is there effective communication between the tech and the service advisor to ensure that extra labor time is accounted for and billed to the customer? These are a few of the top reasons for low productivity problems. There are others, but the main point is to look at the entire operation. Productivity is a team effort.  Blaming the techs or other staff members does not get to the root cause in most cases.
      Maintaining adequate production levels is the responsibility of management to create the processes that will lead to high production while holding everyone accountable. 
  • Similar Topics

    • By Joe Marconi
      You can't pick up a newspaper or watch the news on TV without reading or watching something about the state of the economy. No matter how this was caused, or whether we are in a recession now, or it is coming, will the state of the economy affect the Auto Repair business?
      Are we recession-proof as so many say we are? Or should we prepare ourselves for tough times ahead?  
    • By carmcapriotto
      If you're thinking about transitioning from employee to shop owner, this episode is for you. Instead of guessing your way through the transition, let the Aftermarket Radio Network be your free library of industry peers across the country help you get started the right way.
      Maylan Newton, ESI- Educational Seminars Institute, is a business coach, trainer and industry speaker. Maylan's previous Episodes HERE Vic Tarasik, CEO of Shop Owner Coach. Vic’s previous episodes HERE.
      Show Notes:
      A good technician only makes a good business owner with proper training, guidance, and accountability. You need these 5 professionals- business coach, accountant, financial planner, insurance advisor, attorney Build the business that survives you and provides a legacy to your family the business is not about you is about all the people that depend on the business for their survival, family employees vendors Most importantly, do not treat your business as a hobby you not fixing cars running a business The business owner is the leader, not to fix cars/writing service “People are so afraid of success, that when they reach success they self-destruct.” Not paying yourself opens the door to resenting the business.  What is YOUR cost of doing business? Don’t let the high level of confidence in fixing cars create a false sense of security in solving all things in business. Ask questions of the right individuals- someone with experience who’ve successfully overcome what you have in front of you “Implementation of knowledge is power.” Focus on the fundamentals from the beginning  “Begin with the end in mind” (Covey)- Now that your journey has begun, what is your endgame?  “Life begins and ends at the edge of your comfort zone” Pay your taxes- set up a system where deductions from  
      Connect with the Podcast
      Aftermarket Radio Network
      Subscribe on YouTube
      Visit us on the Web
      Follow on Facebook
      Become an Insider
      Buy me a coffee
      Important Books
      Check out today's partners:
      Shop-Ware: More Time. More Profit. Shop-Ware Shop Management getshopware.com

      Delphi Technologies: Keeping current on the latest vehicle systems and how to repair them is a must for today’s technicians. DelphiAftermarket.com

      Click to go to the Podcast on Remarkable Results Radio
    • By cooterdavenport1
      Looking to get off of pen and paper for ROs and estimates but unsure what tools to take a look at. Can some people tell me what they use, what they like about it, and what they don't like?
    • By ASOG Podcast
      The Problem With Bootstrapping A Business
    • By ASOG Podcast
      Watch THIS Before Trying To Open A Business

  • By nptrb, in Automotive Industry,

    By nptrb, in Automotive Industry,

  • Our Sponsors

  • Create New...