By: Mike Handelsman
Selling your auto service or repair shop is a life-changing event.
The decision to sell your business can be brought on by a variety of factors, including a change in location, finances or lifestyle. Whatever the reason, sellers should be aware of online resources that can make the transaction more efficient and effective. According to a recent Yahoo Inc. poll, two-thirds of Americans dream of owning a business. Potential buyers are always looking, and many of them look online.
Not surprisingly, auto repair, parts stores and service stations make up one type of business most frequently bought and sold online. Data from BizBuySell, an online business marketplace, shows that these types of businesses come in second - behind retail establishments, including restaurants - in the number of businesses for sale. On the site, auto repair and gasoline stations fall under the category of "services," which constitutes nearly 35 percent of total businesses for sale.
Beyond simply giving you access to buyers whom you might not otherwise meet, selling a business online can make economic sense: Putting your shop for sale on an online business marketplace can be cheaper than placing a newspaper classified ad, and can provide much more widespread exposure. Indeed, business brokers and business owners selling independently have found a great deal of success in selling businesses on the Web.
However, before listing your establishment in an online business marketplace, you will want to remember four key points: preparation, using Web tools to your advantage, providing the right information and screening buyers.
Preparing to sell a business
Selling a business is not something to rush. Ideally, many months should come between making the decision to sell and putting an establishment on the market. This allows you to properly assess the financial situation of your shop and create reports describing potential growth and revenue. It also gives you enough time to update or modernize systems that might deter buyers once the business hits the market.
Have all the information potential buyers might want, such as past performance, business costs, and strengths and weaknesses, prepared in advance. Remember that business must go on as usual while the shop is for sale, and once buyer inquiries begin coming in, you might find yourself too busy to put together all the necessary information properly.
Using Web tools to your advantage
Online business marketplaces offer a variety of tools that can help make preparation for selling easier. For starters, it is crucial to price your business accurately. According to data compiled by my company, auto repair and service establishments sold for an average of $326,000 last year.
The data also indicates that service and repair shops typically sell for an average of 88 percent of sellers' original asking prices. Of course, the price your business will sell for depends in large part on your revenues and the business' profitability. According to our research, the price-to-revenue multiple for repair and service shops averaged 0.59, while the price-to-cash-flow multiple averaged 2.39.
In other words, a business with annual revenues of $500,000 would likely sell for $295,000. An alternative valuation might be arrived at using the company's cash flow information. For example, if the business had an annual cash flow of $100,000, the valuation would be $239,000. Most buyers are more interested in cash flow numbers rather than revenue numbers.
Online marketplaces often provide information that helps you to define your selling price.
A comparables report can provide specifics based on comparable establishments, chosen geographic area, gross income and cash flow ranges. This kind of report, which is available on sites such as BizBuySell.com and BizComps.com, can provide general rules of thumb about pricing. For example, our report for auto service and repair shops indicates that these establishments generally sell for around 35 percent of annual gross revenues - and two to three times the owner's cash flow.
An online marketplace also can provide a listing of brokers who can provide additional help in buying or selling a shop.
The option to upgrade a listing to "premium" status also can help users sell their businesses more quickly and easily, through the ability to include more descriptive text in an ad search result, as well as highlighted, eye-catching placement.
Basic listings often give sellers the chance to capture potential buyers' attention with one headline. If this is the option you choose, make sure the headline is concise and clear, but attention-getting. The headline should convey why potential buyers should be interested in finding out more. If there is anything about your business that makes it particularly desirable, such as location, make sure to include it in the headline as a selling point.
Providing the right information
Confidentiality is a significant factor for business sellers. In order to keep the shop running smoothly during the selling process, you will probably want to be extremely careful not to let customers, employees and competitors know you are selling. This means that certain details should be kept to a minimum when posting an online ad.
At the same time, it is not a good idea to post so little information that nobody will be interested in the listing.
The key is providing the most information possible without giving away the identity of the business. It is important to give viewers an idea of the general location of the business, but do not post the business street address, phone number or e-mail address in the listing. Instead, create a separate e-mail address and phone number for inquiries from potential buyers. If you have to provide more details, have the recipient sign a non-disclosure agreement.
Do tell potential buyers why you are selling the business. If you are honest, people will tend to be less skeptical, and you will probably sell your business faster.
Once you list your business for sale, you might find that certain questions come up repeatedly in inquiries. This can serve as a good guiding point for what you should change or add to your listing if the option of ongoing editing is possible.
Another potential issue to prepare for is inquiries from people who are not serious about buying. Sellers often encounter people who have the dream, but no realistic intention of going through with a deal.
It is difficult for online marketplaces to screen potential buyers, so sellers have to determine whether prospective buyers are serious or are just kicking the tires. The best way to do this is by asking potential buyers direct questions about how long they have planned on buying, how they plan on financing the establishment and how much money they have for a down payment.
This kind of informal interview will allow you to determine early on whether the prospect is worth pursuing.