The “Sellability Score” has become an integral tool in my business in assisting a potential aftermarket business seller in answering crucial questions such as: If you wanted to, could you sell your business today for a number that you’d be happy with? Is there anything that you could be doing each day to make your business more valuable?
A direct link to the Sellability Score is available on my website at www.art-blumenthal.com as a no-charge interactive tool offering a comprehensive assessment of the “sellability” of your business. This confidential self-assessment tool will score your business in a number of key areas and tell you just how sellable your business is.
When you complete the two parts of the Sellability questionnaires, you’ll receive:
1) a standardized Sellability Score which ranks your business among all other businesses, and
2) an aftermarket Sellability Score which evaluates the sellability of your business compared to other automotive service businesses.
The Value of the Sellability Score in a Real-World Transaction
Last year when I listed a Midas shop in Prospect Park, PA, a borough near Philadelphia, I was able to work with the franchise seller using factors of the Sellability Score to determine an asking price and develop a sale package, including a comprehensive Confidential Business Review. The online listing attracted the attention of two business partners, Todd Little and Todd Hershey.
Both Todd Little and Todd Hershey were recently interviewed, about a year after the closing, about their buying experience and subsequent successes with their shop. Both had formerly been executives in the advertising and technology industries. My experience has been that, based upon my sales of more than 40 independent and franchised automotive service businesses in the last three years, only one in four buyers had previous aftermarket experience, with 76% of the buyers being from another industry.
At the onset of the interview, Todd Hershey said, “Todd Little and I worked together in our previous careers and had a very good working relationship. Todd Little had the original idea to become an entrepreneur. When he presented the idea of a partnership to me, I thought his intention was for me to be a silent partner, but as we talked we both realized that there would be advantages to having two people actively involved in a business. However, the types of businesses we explored and the sites we visited were really all his ideas.”
Todd Little said, “Todd Hershey was my boss in our previous working relationship. We were always very open and candid with each other about the state of the business and our professional goals and what we wanted to achieve in the near and long-term. Many working professionals can probably relate to the fact that, after a particularly frustrating day at work, I started fishing around in the evenings on various business broker websites. One day, more as a casual thought than a serious idea, I suggested a business opportunity to Todd Hershey. Somehow, everything kind of snowballed from there.”
He continued, “How we landed and where we landed was based, in part, on my background. I have always been a car enthusiast. I spent about five years racing cars with the Porsche Club of America. As I started searching for businesses that were for sale, for some reason…perhaps just my passion for automobiles being driven by fate…I seemed to always be looking at the auto industry, either in automobile sales or in automotive care. Just being pragmatic about the idea, in terms of the investment and overall risk tolerance, I did not think that jumping into car sales would be a great first step into business ownership for me.
So I started looking at both independent and franchised auto service opportunities, including both established and brand new businesses. I found Art Blumenthal’s listing for the shop we ultimately purchased online, and then met with him and the owners. Art’s Confidential Business Review of the business we ultimately bought was certainly the most thorough of any we screened.”
Todd Hershey added, “Since neither of us had any real prior business ownership experience, nor any direct experience in the automotive care business, the franchise opportunity seemed attractive because of the value of a built-in support network. Although that doesn’t guarantee success, we thought it provided securities and support against failing. We also thought that ownership of an established shop would be less of a risk than opening a new one, as on day one you have customers and sales. Because Art has so many years
of experience in the aftermarket and knows what it takes to be successful, he was able to share his own history and instill in us the confidence needed to venture into a new industry.”
Choosing a Business Opportunity
The 2-part Sellability Score of a shop measures financial performance and growth potential, both as compared to other industries, as well as compared to other aftermarket businesses. The higher your Sellability Score, the less time it will likely take to sell your business and the more money you will get for it.
A buyer sees buying a business as paying today for a stream of profits in the future, which is why companies are generally bought and sold using a multiple of cash flow. Buyers look at your historical financials, but they are really buying what they think the cash flow will be in future years. If there is a growth trend in your sales and profits, your business will score better. If there are opportunities for profit growth that you have not capitalized on, then convincing a buyer that they are realistic will increase the value of your business.
When asked about the financial performance and growth potential of the shop they were considering to buy, Todd Little said, “We carefully examined gross sales for that shop from an extremely detailed running five year history and compared them to national averages and what some other shops in the area were producing. If we put a pushpin in the location of our shop on a map and drew a circle around it, the numbers of potential customers and vehicles and traffic led us to believe that it was crystal clear the opportunity was definitely there, given the additional facts that similar size shops were producing larger results and this shop had plenty of room to grow.”
If there is any question of the need to drill down as deeply as possible when establishing your own shop’s Sellability Score, there is one thing you can count on — 100% of potential buyers, such as Todd Little and Todd Hershey, will drill down as deeply as possible before deciding whether or not to place an offer.
Both Todd Hershey and Todd Little spent some time visiting a total of four other shops to observe the operations and compare them to the shop they were considering. As gauged in the Sellability Score of a shop, buyer prospects will scrutinize your physical facilities and operational procedures much the same way as a prospective home buyer might check out a house for sale.
According to Todd Little, “The results of our first couple of visits to other shops were that we saw what it took to keep yourself above water. By the time of our last couple of visits, I felt like I was more informed and comfortable and able to see clear areas where we would attempt to do things differently. It’s an interesting revelation that established shops in the same general proximity in the same industry had very different approaches to process and customer interaction. By comparing and using portions of different approaches we developed a plan for how we would do things in our own future shop. For instance, we learned that by encouraging regular visits to your business for routine maintenance services and safety inspections, you are more likely to benefit from consistent revenue from a customer base that makes multiple purchases over the course of a year than if you attempt to accomplish everything at once and scare the customer off forever.”
First Year Successes
Todd Little said, “We are pleased with the results of our first year of ownership. We’ve seen substantial improvements in gross sales, gross profit, car count, and most important to us, customer retention.”
Todd Hershey added, “The reality of our performance was that in the first year we were able to accelerate the growth faster than we had modeled in our original business plan. Some of the opportunities we saw and built into our business plan were increasing tire sales, growing B2B relationships, and maintaining a razor-sharp focus on customer satisfaction.”
When asked what they are doing to achieve those impressive results, Todd Hershey said, “I think the short answer is…’We care.’ I think the things we’ve brought to the table for this business are stability, tender loving care, consistently good employees, and empathy with customers. It’s not that the former owner didn’t do all that, but as new owners of a single shop, we are able to be personally involved in the daily operation. We are also taking a long-term approach and making decisions with that in mind. For instance, we invested in some new technologies and a new point-of-sale system to run the business more efficiently.”
Continuing, he said, “At our shop, when a customer arrives and the vehicle could easily need five services, but in communicating with them, we realize they neither have the money nor the time nor the inclination to have all that work performed, we ensure that they are totally informed of the needs of the vehicle and help them prioritize the work. So we may only perform one or two of the needed services that day, but we have found that people come to trust us and they come back the next time and remember and typically end up completing the remainder of services we recommended for their vehicle. So although we don’t let anyone leave with an unsafe vehicle, we never pressure them. Our mission is to educate our customers, with the goal of continued business over the next year or, hopefully, a lifetime.”
Todd Hershey said, “I think our roles as on-site owners have been critical in gaining the respect of our customers. In addition, the previous owner has been very helpful to us on an ongoing basis in answering a myriad of questions. We also adjusted staffing to include better diagnostic capabilities, which was a turning point in allowing us to tackle more work. Being there every day allows us to keep tabs on the pulse of the business, the performance levels of the technicians, and the customer base. We’ve certainly made mistakes, and hopefully learned from them, but we have learned and are always learning how best to serve our customers.”
Todd Little offered as further explanation of their success, “I think many businesses in this industry are run on a very transactional basis, while we have focused on relationships.”
For locals and customers of their business, because of their matching first names the shop is becoming known around town as “The Todds.” Todd Hershey said, “Out of the 10 hours per day that we are open for business, at least one of us is present and interacting with customers most of the time. So even with a franchise business, there is the opportunity to personalize a corporate franchise name as an independent shop would.”