How to Sell an Auto Repair Business (3 Step Guide)

This guide explains how to sell an auto repair business by valuing it using total owner benefit multiplied by four, and improving its sale price through three key steps: maintaining strong gross profit margins via strategic pricing and cost control, increasing average written repair orders, and diligent financial reporting to attract and negotiate effectively with buyers.

There are many reasons you might want to sell your auto repair shop. You might be ready for another venture, trying to fund your retirement, or just curious about the value of your business if you decide to sell. Whether you're actively in the market to sell your shop or just want to know how to value an automotive repair shop, this guide provides key steps and considerations.

How to Value Your Auto Repair Shop

The industry standard for establishing a sale price for an automotive repair business is to use total owner benefit (TOB) multiplied by four (TOBx4). For example, if you took home an average of $50,000 a year for the past three years, your business would likely be valued around $200,000 (excluding property value).

This valuation method might seem low, but you can increase your shop's value by staying on top of your numbers. Diligent reporting and good customer service not only increase your TOB but also give you more leverage when negotiating with buyers.

Here are three steps to improve your business valuation and secure the money you've worked hard to earn.

Selling Your Automotive Business

1. Be Tenacious About Gross Profit Margins (GPM)

Potential buyers will want to see your shop’s gross profit margins (GPMs), not just revenue. GPMs show what you were able to take home and what buyers can expect if they purchase your shop.

Strategies to increase your GPM:

Increase prices on parts or labor. Use a parts matrix and a labor matrix, ideally built into a cloud-based shop management system, to mark up prices without shocking customers.
Ensure all cores and unused parts are returned. Use reports to track how much you’re spending versus using.
Cease ineffective marketing campaigns. Track ROI from marketing campaigns to focus your budget on what works.

Regularly reviewing your margins and adjusting your strategy can help you achieve better GPMs that will impress prospective buyers.

2. Increase Your Average Written Repair Order (AWRO)

Your AWRO can and should be higher than you think. For example, if it costs drivers an average of 10 cents a mile to maintain their vehicles and they drive 15,000 miles a year, that’s $1,500 in repairs annually.

By running thorough inspections on each vehicle, technicians can catch all potential issues, including those that will need attention in the future. Digital vehicle inspections help technicians provide customers with a holistic overview of immediate and upcoming needs, allowing service advisors to maximize AWRO.

However, balance a high AWRO with customer trust by clearly showing what work needs to be done now and what can wait.

3. Work to Maintain an Excellent Social Reputation Everywhere

Prospective buyers will look at your ratings on platforms like Google, Facebook, Yelp, Better Business Bureau, Indeed, and Glassdoor. Buyers want to invest in a shop with a strong reputation among customers and employees. High ratings give you more leverage to negotiate a higher price, while low ratings can lead buyers to back out or offer less.

FAQ

Digital vehicle inspection software enables auto repair shops to go beyond traditional paper systems for inspections and repair order estimates. Customers expect a digital experience, and auto repair shops can benefit from updating their processes. Digital vehicle inspections save time, build trust, enhance the customer experience, and help sell larger repairs.

Whether you’ve worked in the industry for years or are considering moving into the automotive industry for the first time, owning an auto repair shop can be rewarding. Eric Reich, who purchased his auto shop in 2021, shares his experience:

The Dream: Owning His Own Business

Eric wanted independence after years in corporate environments. He found it by purchasing Bennett's Automotive, a shop in business since 1991.

The Good: Success and Positive Outcomes

Finding the right shop: Eric took his time to evaluate prospective shops and walked away from those that didn’t fit his goals.
A dedicated, expert team: His team stayed on through the change of ownership and maintained high-quality work.

The Bad: Challenges and Setbacks

Staffing issues: As a small shop, being short-staffed added strain to the team.

The Unexpected: Surprises Along the Way

Time management: Eric was surprised by the number of unsolicited sales calls.
Paperwork: There was more paperwork involved than expected.

Tips from Eric for Purchasing an Existing Auto Shop

Be honest with yourself about your goals (hands-on vs. hands-off ownership).
Be willing to walk away from a bad deal.
Ensure you have enough operating cash (at least three months of overhead).
Be thoughtful about overhead expenses.
Take training in basic financial acumen to understand business finances and evaluate shop health.

Focus on More Than Tools and Equipment

Eric recommends evaluating and upgrading shop software to drive efficiency, organization, and customer engagement. Streamlining operations and effective communication with customers are key. For example, using shop management software can improve workflow and customer communication.

Building Trust with Customers

Upgrading to modern software allowed Eric’s shop to communicate more effectively with customers, sending inspections, images, videos, estimates, and invoices digitally, which improved customer feedback and trust.

Closing

Purchasing an auto repair shop requires careful planning, honesty about your goals, and a strong understanding of financial and operational aspects. Having the right team, investing in efficient software, and being prepared for unexpected challenges are crucial for success. Take time to evaluate your options, seek necessary training, and build a solid foundation for your new venture. With dedication and the right approach, owning an auto repair shop can be incredibly rewarding.

Parts management is also critical. Issues like un-billed parts, inconsistencies between cost of goods sold and accounts payable, inability to track return credits, and undetected theft can arise without careful management. Using purchase orders to reconcile parts sold on repair orders and following best practices for parts management can help avoid these problems.