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Career Transition & Shop Purchase
Greetings all,
By way of introduction, I’m a Senior Corporate IT Manager who’s a lifelong car junkie and gearhead. I’ve always wanted to be self-employed and doing something I enjoy. Truth be told, I’m fed up with corporate life and IT! Alas, the opportunity to purchase an auto repair shop and gas station has presented itself. The shop gross revenue is ~750k/yr (Three Tech’s, 1 Manager and the current owner). The Net proceeds to the owner are ~200k. Asking price 295k.
I’m curious to know if anyone here on the forum has undertaken a similar career change into small business life and how it went? Tips and lessons learned are welcome. Also, if anyone has any insights to the numbers I’d also be interested to hear your thoughts.
Thanks!
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15 Replies
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Welcome to the party! 😉
I have not done what you are doing, however I started in service stations and eventually moved to repair only. Generally, people like yourself do well because they treat it like a serious business as is evidenced by you asking about numbers right up front.
Taking only the details you mention is sounds pretty good at first glance – assuming that you can verify those numbers. As with anything you will find there are more moving parts that you probably expect. There are plenty of simpler businesses you could get into.
I know of one gentleman who did something like you describe. I will see if I can get him to comment.
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The Premium Member area has excellent information on Key Numbers (cost $39 for 90 days access)
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The asking price seems way out of line for a company that nets the owner 200k
you really need to look over the PnL balance sheet and cash flow statements. Something looks fishy. If his gross profit is 60% 200 to him leave 100k for all other expenses. Dig deep.
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He takes 2000/week as salary; the company net profit on the tax return the last 3 years is btw 75-100.
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Thanks, I’m already a Premium.
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Welcome to the party! ?
I have not done what you are doing, however I started in service stations and eventually moved to repair only. Generally, people like yourself do well because they treat it like a serious business as is evidenced by you asking about numbers right up front.
Taking only the details you mention is sounds pretty good at first glance – assuming that you can verify those numbers. As with anything you will find there are more moving parts that you probably expect. There are plenty of simpler businesses you could get into.
I know of one gentleman who did something like you describe. I will see if I can get him to comment.
Thanks Tom! Wow, I’d greatly appreciate his input!
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Lots and Lots of questions in my mind. Some already brought up. I suggest you spend some time on this website: https://art-blumenthal.com/
I would at least call Art and introduce yourself. I suspect he would give you a few minutes of his time, even though it is not his deal.
Learn a lot more about cash flow “normalization” and/or discretionary cash flow. Art could help you a lot with evaluating the financials. He likely has a consulting rate and it would be worth it.
I want to know more about the existing staff. Are they compensated appropriately? Do they have a benefit package that will keep them around? Are they “bought in” to the location?(close to home, convenient, spouse likes them working there, they like the hours of operation, ect).
I have not done what you are thinking about, but i have worked with three individuals doing exactly what you proposing. In each case, the best i could do is to help them get out of what they bought into. They were already in trouble when they came to me. They all returned to their corporate lives.
Yours is a very common scenario in the automotive franchise world. Sometimes it works out real well. Your IT background will serve you well. You will count on having an effective staff more then you can imagine. Your leadership skills will be crucial to your success.
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Lots and Lots of questions in my mind. Some already brought up. I suggest you spend some time on this website: https://art-blumenthal.com/
I would at least call Art and introduce yourself. I suspect he would give you a few minutes of his time, even though it is not his deal.
Learn a lot more about cash flow “normalization” and/or discretionary cash flow. Art could help you a lot with evaluating the financials. He likely has a consulting rate and it would be worth it.
I want to know more about the existing staff. Are they compensated appropriately? Do they have a benefit package that will keep them around? Are they “bought in” to the location?(close to home, convenient, spouse likes them working there, they like the hours of operation, ect).
I have not done what you are thinking about, but i have worked with three individuals doing exactly what you proposing. In each case, the best i could do is to help them get out of what they bought into. They were already in trouble when they came to me. They all returned to their corporate lives.
Yours is a very common scenario in the automotive franchise world. Sometimes it works out real well. Your IT background will serve you well. You will count on having an effective staff more then you can imagine. Your leadership skills will be crucial to your success.
I’m currently reviewing the staff and retention. Based on my research, the staff are compensated commensurate with the local market. They’re tenure varies from 2 to 5 years and all live within close proximity to the shop.
I will give Art a call.
Again, thanks for the feedback!
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You also have an advantage. Coming from IT world you have a “fresh look” at the business. One thing that keeps many of these businesses from being totally successful is stepping back and taking a similar look. So they keep doing it like “they always have.”
To top it off, you have passion.
Keep doing your homework, dot the “I”s, cross those “T”s.
Good Luck
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The asking price seems way out of line for a company that nets the owner 200k
you really need to look over the PnL balance sheet and cash flow statements. Something looks fishy. If his gross profit is 60% 200 to him leave 100k for all other expenses. Dig deep.
Can you give me more insight to your assessment of the asking price? Thanks.
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Al, I believe you’ve made a good decision in wanting to buy an automobile mechanical repair business. I have opened, grown, and sold a dozen auto related businesses over the years. I’ve also bought a few that were existing businesses.
The best advice I can give is to be thorough in your due diligence. Read the lease terms carefully, speak to the landlord, review payroll dating back at least a year to make sure the exiting operator hasn’t given his employees a raise in anticipation of his exit, interview the major suppliers and review parts purchase history, have the seller leave a small amount of funds in escrow for warranty repairs/come backs related to his/her ownership, tactfully terminate and rehire key employees and have them sign/acknowledge your policies that might be slightly different than what they’ve grown accustom to.
As for the net profit??? Hmmm . . . that sounds a bit off. The labor costs related to techs will be job-based but in round numbers, a shop that does $750K in sales has a gross of $375K. The technician labor costs, cost of parts, and sublet ops cost are already accounted for so deduct all the other expenses from $375K and see what you come up with. Rent, insurance, payroll taxes, and advertising will be big numbers. And, a manager that is running a $750K operation likely makes between $60-75K. After the manager expense there’s only $100K or so left over IF the seller is really netting $200K. Create your own performa based on known numbers.
Anyway, good luck to you. Never discount your oil changes . . . that’s a mistake.
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Al, I believe you’ve made a good decision in wanting to buy an automobile mechanical repair business. I have opened, grown, and sold a dozen auto related businesses over the years. I’ve also bought a few that were existing businesses.
The best advice I can give is to be thorough in your due diligence. Read the lease terms carefully, speak to the landlord, review payroll dating back at least a year to make sure the exiting operator hasn’t given his employees a raise in anticipation of his exit, interview the major suppliers and review parts purchase history, have the seller leave a small amount of funds in escrow for warranty repairs/come backs related to his/her ownership, tactfully terminate and rehire key employees and have them sign/acknowledge your policies that might be slightly different than what they’ve grown accustom to.
As for the net profit??? Hmmm . . . that sounds a bit off. The labor costs related to techs will be job-based but in round numbers, a shop that does $750K in sales has a gross of $375K. The technician labor costs, cost of parts, and sublet ops cost are already accounted for so deduct all the other expenses from $375K and see what you come up with. Rent, insurance, payroll taxes, and advertising will be big numbers. And, a manager that is running a $750K operation likely makes between $60-75K. After the manager expense there’s only $100K or so left over IF the seller is really netting $200K. Create your own performa based on known numbers.
Anyway, good luck to you. Never discount your oil changes . . . that’s a mistake.
Hi Mike, thanks for your input! Just want to clarify, the business net as reported last year was 76k. The owner pulls a salary of 104k and naturally there is some cash involved on top of that. Having this breakdown, do the numbers seem to be more in-line with what you you’d expect for a shop of this size? -al
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Al,
There are too many questions that need to be answered before I can give you honest feedback on your decision. I’d be happy to review the numbers with you, confidentially of course, and give you my thoughts. If you’re interested, please email me at rick@180biz.com or call 540-833-2014 X 11. We’ll set up a time to review the information together and come up with a plan moving forward.
If you’d rather not, I wish you the best of luck!
Rick
180BIZ
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Al, Yes that net is likely on the low side so the seller is finding ways to reduce taxable income. But, a $76K net doesn’t really support a $300K selling price. I’d be in the low $200’s on this acquisition. Basically, it’s a bit like buying a job. You can likely make significantly more per year as an employee and have none of the headaches of an owner. I’d feel different if the opportunity happens to come with an option on the real estate. If you’re a cash buyer then I think there are likely opportunities that create a mucher better long-term upside. If cash is an issue and the acquisition includes some creative financing on the part of the seller then I’d likely do the deal and bust butt to pay off the debt. Make sure there are no pre-payment penalties.
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Lots of good info here. But one thing that i did not see mentioned, that is a big deal in evaluating a fair price, is to determine the owners’ actual involvement in the day to day operations. If the owner is basically the face of the business, AND works in the business daily, then my opinion would be that the asking price is too high. If the owner basically oversees things and has a solid team with a manager in place, then the business is more valuable and the price is probably fair, pending due diligence. Congratulations on pursuing the purchase of a shop! The next decade is going to be great for Auto Repair!!
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