Selling your business is a big step, so we've put this guide together to help you understand the road ahead. Whether you're selling a gas station, repair shop, car wash, or car dealership, this guide will walk you through the steps - from getting fair market value, planning your exit, marketing the sale, and closing the deal.
The first step you need to take to prepare your business for sale is to determine how much it’s worth to potential buyers. Among the different methods for valuing a business, the most reliable is to look to the business-for-sale market to get a range. By utilizing a market-based approach, you can set a fair and competitive rate and avoid any preconceived notions that may have been created over years of constructing the business.
Market-based valuations use pricing multiples to compare similar businesses, which is an effective way to determine a company’s value compared with similar businesses in the industry. By examining the multiples, prospective buyers can gain an in-depth understanding of a business's value and make an informed decision.
The metrics used to calculate multiples are earnings (cash flow) and revenue (gross sales). For auto repair shops, gas stations, car washes, and other automotive businesses with owner earnings under $1 million, seller's discretionary earnings(SDE)is the most appropriate cash flow metric to use.
While automotive business valuations fall within a certain range, the value of each individual business is unique and depends on several factors, including the local market, specific financials, and operations of the business.
For automotive businesses, the average cash flow multiple is 3.02, with nearly 70% of automotive businesses falling within a range of 1.00–3.49. The wide range highlights how local market trends and distinctive business operations can affect valuation and sales price.
|
Automotive Businesses Sold (2017-2024) |
Average Earnings Multiple |
Average Revenue Multiple |
|
All Automotive Businesses |
3.02 |
0.68 |
|
Auto Repair and Service Shops |
2.86 |
0.67 |
|
Car Dealerships |
2.15 |
0.23 |
|
Car Washes |
4.5 |
1.72 |
|
Equipment Rental and Dealers |
3.00 |
0.70 |
|
Gas Stations |
3.90 |
0.56 |
|
Junk and Salvage Yards |
4.51 |
0.97 |
|
Towing Companies |
2.87 |
1.02 |
|
Truck Stops |
4.43 |
0.96 |
|
All Other Automotive Businesses |
2.60 |
0.58 |
Perhaps the characteristic that most increases the average earnings multiple among various types of automotive businesses is the level of labor and service necessary to operate it. Self-serve businesses like drive-thru car washes, gas stations, and truck stops routinely sell at three to four times earnings, where service-intensive businesses like repair and maintenance shops typically sell for two to three times earnings.
When it comes to making decisions about buying an automotive business, buyers usually take into account the potential monetary return. Therefore, cash flow or earnings multiples are often the most relevant metric to use. That said, it’s helpful to calculate revenue-based valuations as a secondary method to help narrow down your price range. Automotive business revenue multiples typically range from about 0.50 to 0.90, with the average at 0.85.
When it comes to setting an asking price for your automotive business, you will need financial documents for the past three years. Remember to include all the required financial data, such as profit and loss statements, balance sheets and tax returns. Ask an accountant to help you put together an SDE that shows how much your business benefits its owner after the appropriate add-backs. This financial information is vital for establishing a realistic and competitive asking price for your business.
As the business owner, you have a unique insight into strengths and weaknesses of your business. However, to maximize the value of the business you have built, it’s important to enlist experts with certain necessary skill sets. Having an accountant, attorney, and business broker (or a combination of the three) will help you as you prepare to value and sell your business.
After gathering accurate financial records going back three years, it’s helpful to work with a trusted accountant. They can help organize your financial documents and provide guidance. Potential buyers will take a close look at your financials during the due diligence phase, so it's important to have a CPA to guarantee their accuracy.
Having an experienced business acquisition attorney to help navigate the legal aspects of selling your business can help protect your interests throughout the process. From the meticulous drafting of non-disclosure agreements to the careful negotiation and drafting of the buy-sell agreement, your attorney will provide guidance and assurance that your interests are secure.
Business brokers act as intermediaries throughout the process of selling your business. They offer a range of services, from market valuation and pricing analysis to strategic guidance and advice for maximizing value. Select a broker with specialized knowledge of the automotive industry, as they can offer specific insights into market trends and potential buyers. Brokers typically work on commission, with fees ranging from 10 to 15% of the final sale price.
The more lead-time you have to prepare your business for sale, the better off you will be come deal close. In an ideal world, business owners would begin working on their exit plan about three years in advance of listing the business for sale. The overarching goal is to get your day-to-day operations running without your intervention. Business buyers will always pay a premium for a business that requires a minimum of owner management.
The timeline for selling an automotive business is influenced by many factors — expect the process to last between six months and a year. For automobile related businesses, the average days on market in 2024 were 193 days. Last year saw 523 automotive businesses sold on BizBuySell. Key factors to consider when assessing how long selling your business will take include sale price, cash flow, rent/lease considerations, and location.
In addition to gathering all relevant information and paperwork, you need to identify individuals who can take over the daily management of the business. This is also the time to provide additional training to team members, if necessary. One of the central tenets to exit planning is to get your business running without the daily intervention of its owner. Now’s the time to create manuals that document all processes and procedures to ensure a smooth and successful transition.
When preparing to exit your business, evaluate your business from the perspective of a potential buyer and identify areas that need improvement. By taking the time to analyze and optimize your business, you can increase its value and improve your chances of a successful sale.
|
Improves Price Multiple |
Reduces Price Multiple |
|
Reliable and well-documented operation: organized financials, detailed operating procedures, comprehensive vendor policies, etc. |
Obscure operation: Complicated or non-existent bookkeeping, unreliable vendor relationships, undocumented agreements, etc. |
|
Good location, with favorable rent and good lease terms. |
Poor location, with above market rent and/or unfavorable lease terms. |
|
Modern, well-maintained tools/equipment. |
Older, inefficient, or worn-out equipment. |
|
Reputation for customer service, committed to customer satisfaction and building trust. |
Poor or non-existent reputation. |
|
Strong brand expertise and/or specialty niche that retains loyal customer base. |
Unestablished brand, with no specialization that struggles to build a loyal customer base. |
|
High customer retention rate. |
Low customer retention rate. |
|
Effective and repeatable marketing and sales pipeline. |
Ad hoc marketing and sales. |
|
Experienced and tenured admin and service employees who are likely to stay after the sale. |
Employees that are not committed to staying once the business is sold. |
|
Operations management in place. Ideally owner focuses on high-level strategy, not daily operations. |
Owner manages daily operations—owners too connected to the day-to-day operations impact value. |
|
Seller financing: Business owners willing to finance a portion of the sale can often receive higher prices. |
Cash only: Sellers who insist on all cash will usually have to accept a lower offer and may receive fewer offers to consider. |
To find the right buyers for your automotive business, you need a marketing platform to attract interested parties with the intent to purchase. Business owners must decide whether to keep the sale confidential, as it’s standard practice to maintain discretion to prevent disruptions to business operations and maintain value. However, exceptions apply, such as for well-known and respected businesses where publicity may be beneficial. Consider the value of letting trusted business associates and competitors know of your intention to exit. Those already involved in your industry may value your business more than unknown parties.
Listing your business for sale on popular marketplaces like BizBuySell and BizQuest will get your sale in front of the largest audience possible, and help drum up competing offers. Even if you elect to sell to someone in your professional network, it helps to have offers on the table so that all parties feel the price reflects market value.
An effective marketing strategy engages a combination of approaches. In addition to your marketplace listing, consider including local ads, and confidential inquiries to trusted business associates, financial professionals, and potentially even competitors. If you choose to work with a business broker, they will develop the marketing strategy, but be sure to remain engaged and ask for regular updates on marketing performance.
The final steps when selling an automotive business come down to negotiating the terms and closing the deal. Keeping your emotions in check is important, whether you’re selling your business on your own or using a broker. Seek objective input from your accountant or attorney if you choose the For Sale By Owner route. Otherwise, your business broker is the best person to rely on for advice regarding when to give a little and where to draw lines during negotiations.
Business owners can improve negotiating power by having a clear understanding of the myriad financing options available to buy a business. From seller financing to pre-qualifying for an SBA loan, explore financing options to attract a greater number of potential buyers.
Once final terms of the deal have been agreed upon, it’s time to close the deal. The BizBuySell team put together a comprehensive checklist to guide you through the process of transferring the business to the new owner.
When it comes to selling an automotive business, simplify the process by taking the time to understand the value of your business and how the business-for-sale market operates. This will allow you to put a process into place that will attract the best opportunities.
Download our free Guide to Selling your Business and get information and advice to sell your automotive business successfully and with confidence.
