Selling an Auto Service Business is An Emotional Rollercoaster

Selling an Independent Auto Service Business: An ‘Emotional Rollercoaster’ For Both The Buyer And The Seller

"Am I supposed to just keep working until I drop dead?" is a question many Baby Boomer generation business owners may ask themselves sooner or later. Jim Hermansader, a veteran of the automotive service industry who had spent 43 years, since he was 18 years old and fresh out of high school, in a family-owned business, had to ask the question out loud when he received some pushback from those who challenged his decision that it was time for his business to change hands.

“Am I supposed to just keep working until I drop dead?” is a question many Baby Boomer generation business owners may ask themselves sooner or later. Jim Hermansader, a veteran of the automotive service industry who had spent 43 years, since he was 18 years old and fresh out of high school, in a family-owned business, had to ask the question out loud when he received some pushback from those who challenged his decision that it was time for his business to change hands.

Hermansader’s Garage
400 Kohler Hill Road
Hamburg, PA 19526

Jim, an ASE-certified technician, and his wife, Kimberly, owned and operated the seven-bay auto service business since 1980. The business was founded by his father in 1969, with Jim growing up in the automotive service industry and eventually becoming the co-owner with his brother of the independent center until he bought out his brother’s share in 2000.
the sellers: jim and kimberly hermansader in well-deserved relaxation mode in the summer of 2012 after selling the automotive aftermarket business owned and operated by the family since 1969.
“The journey we took from deciding to sell, to listing the business with a broker, to finding a buyer, to dealing with the financing requirements of the bank, to actually closing the deal was an emotional rollercoaster for us,” noted Jim. “All of those things occurred within a six- to eight-month timeframe, but I was talking to business brokers about selling for a ­couple of years before actually making the final decision to move ­forward. So it was a very long ride on that coaster.”

Jim and Kimberly had reached a point in life where their children had completed college, their residential mortgage was paid off, and they questioned whether they really needed to spend the energy it takes to maintain and grow a business.

“We decided that Art Blumenthal was the right business broker for us, but then Kimberly and I had a sudden change of heart when it came to signing on the dotted line, and we backed out. Art understood and was a gentleman about it. A year later, we finally decided that we’d had enough of running the business, that we really wanted to enjoy a retirement, and we were ready to sell.”
the buyers: new owners of hermansader's garage, chris yost (left) and his father-in-law jeff pettit, pose in front of their newly acquired business.
About the Buyers
Neither Jeff Pettit nor his son-in-law Chris Yost, co-buyers of Hermansader’s Garage, have a background in the automotive service industry. Jeff worked as an estimating manager for a ­company that built truck bodies, and Chris worked in the computer field. Chris, however, had some vocational technical training for auto repair and spent a lot of time working on old cars with his grandfather.

Jeff worked for 29 years for the same company. Chris received a computer science degree and then obtained a position as a computer engineer for a help desk firm before buying Hermansader’s with his father-in-law.

“We wanted to purchase both the business and its real estate because in this market we could buy the property outright for less than we could rent it,” said Jeff. “But long ­before we got to that point, it was an ‘emotional rollercoaster’ for me to make the final decision to go into business for myself.

“My son-in-law and I get along very well and have often discussed owning a business together,” Jeff continued. “I was in no hurry to leave the security of the firm for which I worked for so long, but Chris was a driving force in making me decide that we could chart our own destiny by becoming our own bosses. Chris found the listing posted by Art Blumenthal on-line and brought it to my attention. He knew that I would consider buying only an established business and this one seemed to fit that bill.”

Jeff and Chris recognized the potential to grow the customer base, an ­endeavor that the former owners had not pursued because they were in ­retirement mode, rather than business-building mode.

Chris admitted that he ­always had the entrepreneurial spirit. “I always wanted to run my own business. Even though it looked for awhile as if computer science would be my career path, things changed and now I’m in the auto service ­industry.”

About the Business
Hermansader’s Garage, providing quality car care in Hamburg, PA, since 1969 (www.hermansadersgarage.net), has a reputation for honest and efficient customer service for two generations, resulting in a loyal consumer base and a consistent positive cash flow.

Located about 60 miles northwest of Philadelphia in east-central Pennsylvania, this seven-bay, fully equipped business offered a buyer a unique ­opportunity for acquiring and growing an established profitable business with strong customer loyalty.

Selecting a Business Broker
Jim said, “I interviewed two other business brokers before deciding to utilize Art’s services.”

The other brokers didn’t make the cut because they didn’t seem to fully understand the complexities of selling a longstanding, profitable business. “One guy wanted to put up big For Sale signs … red flags to customers, employees and suppliers,” noted Jim. Confidentiality is a key attribute of ­successfully selling a business and an experienced business broker knows that well.

“The other broker who I had to disqualify had deep experience in selling businesses in practically every industry … except automotive service. When I learned that Art specialized in automotive businesses and then interviewed him at our first meeting about how he would handle the sale, I knew he was the right choice. Art was so ­patient and professional with us when we initially changed our minds about selling. His reaction ­impressed us,” observed Jim.

The Business: What’s It Worth?
“When first deciding to sell, I basically had a number in mind for what I needed to get for the business so I could retire,” said Jim. “We knew that if we hired some more technicians and committed to a marketing plan, we could grow the business, thereby increasing its value substantially. But the truth is, that I was just tired and didn’t want to make those commitments, so we ­established a sales price based upon the actual worth of the business now, rather than on its potential worth.

“Art worked closely with us to provide guidance in establishing a sales price that considered our cash flow and other key attributes of our business,” said Jim.

Scope/Timeline of the Sales Process
Initially, it was Jim’s plan to not include the sale of the real estate along with the business. Art recommended that, in this case, it might be prudent to list the purchase of the real estate as an option. Although Jim had planned on leasing the real estate as a source of monthly retirement income, it was also pointed out to him that should the business not succeed under new ownership, that revenue stream could abruptly be halted. In the end, both the business and the real estate were sold together in a financing package that made the most sense to all parties involved.

“Once Art had listed the business in the Fall of 2011, the next thing I knew he called and said he had a prospective buyer,” said Jim. “I had thought the process would take a couple of years, so the speed in which he supplied a prospect surprised me. The prospective buyers, Jeff and Chris, came and took a look on a Saturday in October and we had a nice discussion, and by Monday Art called and said they had made a deposit. I was both floored and excited by the speed in which things were ­happening.

“Just as I was getting accustomed to the idea that this was going to happen smoothly and I could go to bed and sleep soundly without worrying anymore, as Thanksgiving approached the buyers suddenly dropped out,” Jim continued.

“So we were very disappointed and back to square one…one of those plunges on the ‘emotional rollercoaster.’ But then several weeks later, Art again called and said the buyers were back in the game.

“We then waited while eagerly ­anticipating the bank’s approval of buyer financing. Once it was approved and a letter of commitment was issued by the bank, it was a big relief. We were notified by the bank that a phase one environmental impact study and a business appraisal would be required.  The appraisal turned out fine, but the process got scary and delayed as some phase two testing of the soil and water had to be completed. Fortunately, the ­results came back clean from the ­environmental company that Art ­recommended.

“But don’t think that ended reasons to worry. Further delays by the bank continued my rollercoaster ride until the closing actually occurred. But at every turn throughout the process, Art was the voice of reason and a stabilizing force to all our ­concerns.” The closing took place in May 2012.

Scope/Timeline of the Purchase Process
“Once we met with Art and Jim and viewed the business and did our due diligence,” said Jeff, “we felt confident this was the business for us. Leaving my job and the people who I had worked with for so long there took a lot of thought on my part and was an ‘emotional rollercoaster’ for me, but I took the plunge.

“But after my initial decision to purchase, I had strong second thoughts about leaving my job and, as a result, withdrew the offer,” he admitted. “But after five or six weeks of nights staring at the ceiling and thinking about it, I realized that my so-called job security could end anytime anyway … they could close down or lay me off … and I really ought to take advantage of this opportunity.”

The next challenge for the buyers involved the process of bank financing. “For a first-time buyer, having a broker involved to calm the nerves of both sides is definitely a plus. I found myself picking up the telephone to call Art and ask questions very often. He helped me out much more than the bank did. He even acted as a communication conduit with the bank. Our experience with the bank was frustrating, with all kinds of ­issues, but eventually everything came together,” concluded Jeff.

Post-Sale Observations
The buyers decided to retain the name of the business because of its solid reputation in the community. Jim said, “We maintain contact and are on good terms. After all, it’s still my name on the wall of that business and I want it to be a success for them.”

Jim recommends to others considering the sale of their businesses to maintain patience during the process and have a business broker who can be counted on for charting the course.

Jeff and Chris have each embraced the opportunity to “Be Your Own Boss.” Jeff said, “Much of the work I do now in my new endeavor is very similar to what I’ve been doing throughout my career … dealing with customers and suppliers and their specifications, providing quotes, handling telephone calls, and so on. I’m so glad that I made the decision to buy the business, even if it took me awhile to make that decision.”

When interviewed about the recent sale a couple of months after the closing, Jim was in a lounge chair under a shady tree sipping a cold beer.

“I was initially a little concerned that the adjustment from the daily grind to a life of leisure would be a bit of a tough one,” Jim conceded. “But now that I’m doing it, I realize I adjusted pretty quickly,” he laughed. “Some serious travel and some serious golfing are in the future plans. I have to become adjusted to scheduling leisure time with as much commitment as I used to schedule work.”

Buyers Jeff and Chris have many ideas for growing the business while maintaining the excellent reputation with customers built by the Hermansaders. “Our new advertising and customer appreciation marketing ­programs have captured new customers for us and we are delighted by that,” noted Jeff. “In addition, we’ve already added a new employee to handle the new business.”

Chris is happy to be controlling his own destiny by owning his own business at a relatively young age and ­already has plans in mind for ­expansion of both the services provided and of the facilities

Leveraging more than 30 years of experience as both an aftermarket business owner and aftermarket
technology executive, Art Blumenthal LLC provides business intermediary and advisory services to
both buyers and sellers of industry businesses of all sizes. Art is a member of IBBA (International Business Brokers Association, Inc.). For more information, or to initiate a no-obligation confidential consultation, visit www.art-blumenthal.com.

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Understanding how to calculate ROI can help your purchasing decisions.

I’m not a financial scholar by any means, but I know what return on investment (ROI) is. It’s a mathematical formula that yields a representation of the profitability of any type of investment. In the automotive repair industry, we primarily associate this with equipment. Admittedly, I’ve never used the term much, more often approaching things from the standpoint, “Am I making money with this or not?” As technicians and shops, our typical thought process centers on each individual job, how much time and money we have into it, so we’re used to thinking profit or loss, and also pretty good at knowing if we made money, or if we lost our “back quarters.”But over time I’ve learned that the thought process alone is not always the best approach, and making money doesn’t necessarily mean a good ROI. Even if you don’t go crazy with an exponentially long, complicated equation, if you understand the basic idea and process of calculating ROI, it can help you make good purchasing decisions. The base calculation would be dividing your net profits by the cost of the equipment. That’s your ROI. Then, if you want to take it further, you can divide that number to get a time-based ROI average.Let’s look at a basic calculation. You buy something for $10, then sell it for $14. Your profit is $4. Divide profit by investment, ($4/$10) and you get an ROI of 40%. Not bad, but if it took two years to make this profit, then your ROI would be 20% annualized, which is not as impressive. You can use this basic formula to compare products you sell as well, and it may help you decide what’s best to keep in stock or not.Now let’s try something with equipment. You have an old tire machine that’s paid for. You average one set of tires per week and it takes 1.5 hours to complete the job. You decide to buy a new tire machine that is much quicker and more efficient but it cost you $20,000. Now the same job only takes one hour. Based on the cost of technician salary, you calculate that it saves you $30 per job with this new equipment. In this case you would use the formula: savings (additional profit)/investment. At one set of tires per week, that works out to $1,560 per year. $1,560/$20,000 equals an ROI of approximately 8%. That’s not too good. It will take you almost 12 years to pay off the new machine.On the other hand, if you average five sets of tires per week, then your additional profit for the first year is $7,800. $7,800/$20,000 equals an ROI of 39%. That’s pretty good. A general rule of thumb is to pay off any piece of equipment within two to three years. This puts you right on track.But now, here is the problem. This is where we throw the proverbial wrench into the plans. Equipment is tricky. You should also calculate in installation and maintenance costs, as well as the cost of training for the new equipment, and factor in how long the equipment is going to be relevant. This is an especially important factor when considering a scan tool, the required updates and how long before it’s potentially obsolete. In the case of a tire machine, you can also calculate in savings from other benefits of a new machine, such as no more damage to wheels or tire pressure monitoring system (TPMS) sensors, which the new machine can eliminate.Some of this can be overwhelming, and it makes me realize why it’s easier just to fly by the seat of your pants and wonder, “Am I making money or not?” It’s an important business aspect, however, to know what is behind the idea because it can benefit you in so many ways. Even without math, you can almost visualize the numbers in your head.I’ll try it by leaving the formulas out to decide whether it makes sense to buy a dedicated TPMS tool when you already have a full-function scan tool with TPMS ability.If you get a TPMS problem every day and you use your full-function scan tool to diagnose it, most likely it takes much longer to boot and longer to navigate to the function. Even then, it may not cover all you need. Because there’s such a vast amount of information that a full-function scan tool has, it simply takes more for the manufacturer to keep everything current. Plus, you often must still rely on service information for certain procedures and then, if it’s the only scan tool for your shop, it ties it up for use in other diagnostics.Now, let’s compare that to a dedicated TPMS tool. 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It’s a great concept that represents fundamental business financials.

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