Looking to Sell Your Business? Debunking a Myth

Looking To Sell Your Business? Debunking An Aftermarket Myth

As a tire or automotive service shop owner looking to sell your business, you may be making the process even more challenging by mistakenly disqualifying potential buyers who would actually make great owners.

Discipline and Listening Well Are Keys to Military Service and to Auto Service

Two years ago in the July/August 2013 issue of Shop Owner magazine, an article about the recent purchase of an auto service center in Memphis, TN, by Bill Brickhill was featured. The article introduced Bill as a retired U.S. Navy officer with 20 years of active service followed by seven years in the reserves.

When asked what attracted him to the automotive aftermarket, Bill admitted that it had been a long journey, commencing about a year before his retirement from the Navy. While working as a civilian consultant, he started looking at different career options.

“I really wanted to own my own business, but wasn’t sure which industry would be the right fit. Once both of my kids got to high school age and my family and I decided to make our permanent home in Memphis, I explored various possibilities, from convenience stores to gas stations, liquor stores, even at one time coming close to buying a sports bar, but then changing my mind,” said Bill.

Bill Brickhill, retired U.S. Navy officer, purchased his first shop in 2013 and his second shop in 2015
Bill Brickhill, retired U.S. Navy officer, purchased his first shop in 2013 and his second shop in 2015

He continued, “I really wanted a business which matched my professional values in which I could make a positive impact.”

The shop he purchased at the time was an established, profitable, turnkey operation with seven bays, equipment, inventory and experienced employees in place located on a busy intersection with a high traffic commercial strip. The shop provides comprehensive vehicle repair and maintenance services, offering total car care including brakes, oil changes, exhaust, scheduled maintenance, tires, steering and suspension services.

At the time of the purchase, Bill noted, “Buying a business is like working on a MBA the hard way…a real trial-by-fire. A good business broker can smooth that arduous process. For a first time buyer, having someone involved who knows the ropes is definitely a plus. There’s an amazing amount of paperwork and negotiations to get the deal done.”

Two years later, Bill added, “If I then thought that buying a business is like working on a MBA the hard way, I have since learned that owning and running a business is also a real trial-by-fire. I’ve learned much more about balance sheets and P & L statements by being responsible for their content than I ever would in school.”

But Bill has, in fact, welcomed the opportunity to “Be Your Own Boss” and, as a result, has just recently purchased his second shop.

Bill said, “The details of the purchase of my second shop are a completely different scenario from the first. Rather than being a thriving, profitable business, it is a location that has been closed for a couple of years and all but forgotten by its former customers. So it’s a whole new challenge to have re-opened it and started over. The brutally frigid weather we had this past winter delayed the opening until April, but now that we have opened we have gotten off to a slow but solid start.”

When asked how long it takes to become proficient at being a shop owner, Bill replied, “Well it has taken every day of the past two years and I continue to learn new things every day. There is just so much to learn about running a business in a constantly changing landscape of rules and regulations. That’s the hardest part. Healthcare reform legislation and how it impacts a small business is just one example of a major challenge.”

Bill concluded by saying, “Whether coming from an automotive service background or not, a new owner having the discipline to focus and desire achievement combined with the ability to listen to your customers and ­address their needs are the keys to success in this industry.”

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Shop Equipment ROI – Tooled for Profit

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. Built with only one function in mind, they can make the process much quicker, have greater coverage, boot quicker and quickly walk you through all steps of any required TPMS resets. When you factor in the savings in time and the fact that your primary scan tool isn’t tied up, you can prove the value of a dedicated TPMS tool through ROI calculations. On the other hand, if you rarely work on TPMS systems, you can prove it wouldn’t make sense at all, since you do have the function on your primary scan tool.While you haven’t done any calculations, you’ve thought of it in that manner and can picture where the calculations might end up. If you’re on the fence, the math will give you the answer. Ultimately, your accountant could take the idea even further, with an undoubtedly more advanced knowledge of ROI, and almost certainly a way to calculate depreciation into the formula. That’s where I sign off, but you get the idea. It’s a great concept that represents fundamental business financials.

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