If you own a collision repair business, you will eventually have to ask: “Is it time to sell?” Rick Schwartz of Schwartz Advisors discussed this important decision during “Tips on Selling Your Business,” on October 21st as part of ASA’s Webinar Wednesday series. Tony Molla, ASA vice president of industry relations, introduced Schwartz and the presentation: “While it’s not uncommon to have a succession plan in place, changing circumstances can and often do require a different strategy. It’s an individual decision that can only be made by a business owner.”
Beginning by looking at mergers and acquisitions (M&A) over the last decade, Schwartz pointed out the strength of M&A in the automotive aftermarket industry. Though COVID-19 had a significant impact earlier this year, this industry is recovering faster than many others, with private equity firms investing and selling companies.
Schwartz advised, “Be prepared and be ready. If you haven’t already, you will have to address mergers and acquisitions eventually – whether it’s your business, your competitors or others in your market. There’s a lot of opportunity to take advantage of M&A.”
Although current M&A interest creates a lot of opportunities, buying or selling a business is a personal decision made by the business owner. “This might be the most important business decision you’ll ever make, so you have to be clear about what your objectives are,” Schwartz said. “If you’re ready to consider selling your business, be prepared! Business owners that do their homework before starting the sale process get better results.”
According to Schwartz, automotive repair business valuations are high right now because large corporations want to grow and many are backed by private equity investors, causing a rush to consolidate local and regional chains; however, “valuations ebb and flow with the economy, and they will not always be this unbelievably high,” he cautioned.
Those considering selling must determine what they need to net, if they want to continue working, what the value of the business is, and who potential buyers might be. Schwartz stressed, “Buyers who see the strategic value in your business will always be inclined to pay a little more for your company.”
After making the decision to sell, you must decide if you will work for the new owner or if you will leave after a transition period. You should also be clear about which employees will continue to work for the new owner.
“Your business is probably one of the most important assets that you own,” Schwartz said. “Figuring out what it’s really worth and who the likely buyers are is not easy, but it is possible to get a handle on things. This is your decision, so think through what your needs are and be prepared before you decide to start a sale process.”
Before beginning the process, there are three topics that Schwartz suggests being well-versed on: your numbers, what makes your business valuable, and your legal business structure.
The sales process begins with the numbers, but many business owners are concerned that this first step is too complicated. In addition to providing three years of financial statements, the seller must show a schedule of adjustments, which identifies one-time expenses that the new owner won’t have to spend; “this is really critically in getting the optimal valuable for your company,” Schwartz explained. Reasonable projections for the next three to five years must also be included.
Determine what makes the business valuable may not be as clear-cut as you’d think – besides your customer list, key suppliers, physical assets and intellectual property, your employees and your own skills and reputation may be part of what makes the purchase so attractive. “A lot of times, YOU are what makes the business valuable, so how will it thrive if you’re leaving? You need to be able to show that the business will be able to survive without you, and then you need to be able to communicate this to a potential buyer,” Schwartz stated. “Knowing what makes your business exciting and valuable will help you negotiate with a buyer.”
The legal structure of the business also has a significant impact on valuations and can help determine the best form of a transaction. Taxation law also vary depending on whether the shop is registered as a corporation, partnership, LLC, etc.
Selling your business is very emotional and disruptive, but Schwartz assured, “It does end. If you’re prepared and can avoid any hiccoughs, you have a shot at getting a better deal… even while you’re in the middle of the sales process, you have to continue running your business to take advantage of opportunities in the marketplace. Selling a business feels like a full-time job, but you can’t neglect your current job.”
The bottom line, according to Schwartz, is “Figuring out what your business is worth and sizing up your options for the future is doable. It’s not rocket science, but it does take some thought and effort. You have the ability to choose a path that works best for yourself, your family and your employees. Know what you want in the deal! If you only sell your business once in your life, make sure you plan for a successful deal.”
ASA’s Oct. 21st Webinar Wednesday presentation was sponsored by DELL Technologies. ASA’s next three webinars include: “Tax Tips for Closing 2020: Are You Ready?” presented by Eric Joern of James Hamling & Companies CPAs and Advisors, on Oct. 28th; “Using Technology to Create a Competitive Advantage,” presented by Chris Cloutier and Craig O’Neill of autotext.me, on Nov. 18th; and “ASE Entry-Level Certification Helps Shop Owners Find New Talent,” presented by John Saia from ASE Education Foundation Management, on Dec. 9th. For more information or to register for ASA’s webinars, visit asashop.org/webinars.