An independent automotive service business can be so much more than bricks and mortar, equipment, employees and a source of revenue. It can also be a source of pride — a testament to a lifetime’s worth of hard work.
I sometimes share case studies of the clients I have been able to assist in my role as an aftermarket business broker and provider of intermediary and advisory services. I do that when I think the story will provide a reader in similar circumstances with new insights or helpful information. Although every sale of a shop in which I am involved has its own unique set of circumstances, which makes my job both very interesting and very challenging, there are common threads that run through them all.
The Sellability Score and Exit Plans
In my most recent articles in the Sept./Oct. and Nov./Dec. issues of Shop Owner, I discussed the concept of the “Sellability Score” as it pertains to auto service businesses. “Sellability” is a powerful indicator of the value of your business, regardless of whether or not you have any intention or interest in selling your business today. A high Sellability Score may confirm or surpass the value you have in mind. A lower Sellability Score may point directly to the underlying issues in your business that undermine its value.
I mention the Sellability Score again because it can be a key tool in building an exit plan. When you spend a lifetime trying to build a successful business, it leaves little time for much else, including thinking about an exit plan. Even if you are planning to pass the business on to family, you want to ensure you are offering them a valuable business. Whether you are creating an exit plan for the short term or for years into the future, it’s never too late or too soon to start understanding — and increasing — the value of your business.
Although the majority of shop owners do not have an exit plan, a well-thought-out exit plan can protect and preserve the legacy of your business long after you have been active in managing it.
An Exit Plan in Place
Yelp online reviews (consumers rating the businesses with which they interact) can speak volumes. Wright’s Automotive in San Leandro, CA, ranks five out of five stars.
Winnie Wright, co-owner of the general auto service shop with her husband Ken, is understandably proud of that rating.
“They come to us because we are thought of as family. They trust us in a comfortable setting. People who come to us for service want no part of the typical service provided at auto dealerships,” she commented.
Ken and Winnie Wright have owned the business for 38 years. “Because of the hard work we’ve done over the years, anyone would be proud to inherit what Ken and I have built,” she said. Since 2007, when Ken became inactive in running the business, Winnie has been running the business along with a manager.
Winnie continued, “Ken and I had an exit plan in place. We knew what we wanted to do. We knew we eventually needed to retire. We planned to sell Wright’s Automotive to an energetic entrepreneur who would want to continue the tradition of quality customer service, as well as realize its potential and further grow the operation to the next level. We can now reveal that we started interviewing prospective buyers a few years ago…the kind of so-called prospective ‘buyers’ who fooled us by initially sending letters claiming they were qualified and ready to purchase. After responding in good faith, we received a few denials and were very disappointed that our time had been wasted, and we still didn’t have the buyer we sought.”
She continued, “In the meantime, I continued working and wondering how and when we would find the right buyer. In an effort to ease my workload and increase revenues, we hired a service writer in 2011, and then another, and neither worked out. What a disappointment. Revenues were flat and I was tired and told Ken that it’s time.
“Ken had saved an article in Shop Owner magazine written by Art Blumenthal. In the spring of this year, Ken pulled out the article and we called Art.”
Potential Buyer Found
John Bridgwater has been in the auto service business for 28 years. “I have been with the Wright’s for three years. I started as a technician in 1987 and have worked for several locations, including chains, an auto dealer and independents throughout the State of California.”
He is an ASE-certified Master Technician with advanced-level certifications.
“The initial consideration for eventually buying Wright’s Automotive was aired during my job interview with Ken and Winnie just over three years ago,” said John. “I told them right up front that at some point I want to buy a shop, whether it’s yours or somebody else’s. I know you guys are getting close to your retirement age and will be ready eventually, and as long as we turn out to be a good fit, I would be interested in buying your shop. And they were cool with that. So they knew from day one that I was interested in making it happen on their timeline. I was not pushing or trying to hurry things along at all.”
When asked why he wanted to “be your own boss” now, he said, “Where do I start? I’ve always had the dream. Too many irons in the fire at any given time and then time slips by. I guess the bottom line is that now I am finally mentally ready after 28 years of excuses. I was able to overcome all the obstacles and objections in my own mind…to get past all of the if’s, when’s, and maybe’s.”
Winnie also remembers John’s initial interview. “When John Bridgwater initially came to work for us about three years ago, he said, ‘I want this shop.’ I told him that I was not ready to sell right away, but when I was ready to sell, I would let him know. But, in the meantime, I would monitor him to see if he qualified — not just qualified financially, but qualified with the heart and soul to protect our legacy of treating our customers right because I was not going to sell it to just anybody.
“As time went by, in addition to working full time for us, he successfully managed his own licensed mobile repair business and was tenacious in making that work,” she noted.
Their Involvement With Me As A Business Broker
I first met with Ken and Winnie Wright last May. Winnie said, “When we first met with Art, we told him we might have the buyer already in place, but because we were not certain if John would qualify financially, we wanted to keep our options open. My assignment was to get our numbers up for the financial package to be created by Art, with whom we signed our agreement in early August. We then approached John, and he was gung ho and said he wanted to buy the shop.”
I have long maintained that a key employee in a shop — a manager or service writer or technician — may potentially be the most logical buyer. That seemed to be the case in this situation, so the Wrights and I were able to structure a flexible arrangement to reduce the professional service fee if John became the buyer, while still advertising and marketing the business to all prospective candidates as I would with any client.
“I asked John to demonstrate his strong desire to be an owner by changing his behavior from that of being employed as a technician to that of a boss, and he stepped up and did so,” Winnie said. “He had some time to expand his responsibilities and get acquainted with the business software and financials, to conduct service writing and transactions with customers, and to see the daily life of running a business firsthand. When I saw how well he was adapting and how cordial under pressure he was with the customers, I knew he would be the one. After 38 years, I felt really good about leaving my customers in his hands.
“He handled taking care of the Bank/SBA applications and documentation with the help of Art Blumenthal. Ken and I could have funded the purchase, but we preferred to let the banks handle it and just become landlords. That took some real scrambling to accomplish, but he was determined and made it work,” she continued.
“Art was instrumental in the financial qualification process because he had contacts and a successful track record with a major bank in San Francisco,” Winnie said. “That was very beneficial to John, who initially wondered if it made sense for us to have a broker when a buyer is already in place. I told him that Art’s expertise in creating an attractive financing package and business contacts were needed to successfully navigate through the process, and that’s exactly what happened.”
When discussing the hurdles that are thrown up when purchasing a business, John said, “Buying a business is a process full of hiccups. Sometimes it seems like taking one step forward and two steps back. I had to get all my licensing in place, and there were lots of checks and balances that the lending bank had to go through. In the meantime, California’s Bureau of Automotive Repair (BAR), which oversees everything regarding auto repair businesses here, has rules and processes to which I must comply, plus I had to finalize my limited liability corporation in order to set up my new business.”
A Done Deal
“The negotiations between the sellers and myself were not that complicated because I’ve worked for them for three years,” John said. “Winnie even shared the books with me while preparing the financials. But the process — the actual steps of buying a business — is a nightmare. There is so much paperwork, and everybody wants something from somebody else, and it’s hard to figure out what you have to do first.
“Art has been tremendously helpful with that and helping me navigate through the things that needed my attention. As a business broker, Art’s job is to write a sellable package. So that’s what he did. He knows better than anyone what it takes for the banks to buy the package to finance it. He worked with the seller to create a package that the banks would buy and that, of course, an interested party would buy. You need the numbers and everything in place for someone to say ‘Hey, I could make money at this and be profitable.’ For me, it’s more than that. I’m already a part of this community, and I want to serve my community. My family has decided we really like it here and want to stay here, so it was important to have something locally to serve our friends and neighbors,” John continued.
“Ken and Winnie are very interested in preserving the legacy of their business. They want to ensure that Wright’s Automotive continues with satisfied customers to whom they feel responsible after all these years. I do not feel any undue pressure to maintain that legacy because we have very similar values. The name of the business will absolutely not be changed. It’s been Wright’s Automotive for 38 years, going on 39 years, and I have no desire to upset that. It is a very well-known pillar of the community,” John concluded.
The closing took place, as had been hoped, at the start of the New Year. Winnie said, “For the first few months after the closing, I will be staying on at no cost to John to assist with the transition to new ownership so that our long-term, loyal customers will not experience sudden changes. That will allow John to gain the confidence of his customers. I want them all to know that we handpicked John as the new owner and the team is staying. John will be joined by his wife in running the business. Ken and I want them to succeed and want Wright’s Automotive to continue as our legacy.”
I am always gratified to be part of a win/win arrangement that satisfies the objectives of both the seller and the buyer. Buying a business and getting it financed so that a seller receives cash for their retirement plans can be a complicated process. I am happy to have provided a professional service to help the Wrights and John get to the finish line. I find that many sellers simply rule out their employees as potential candidates because they assume that it takes huge personal financial resources to secure business financing. So, it is especially rewarding to be involved in a transaction where an entrepreneurial, customer-focused employee with a modest downpayment can fulfill his dream to “be your own boss.”