How Financials Contribute to Your Diesel Repair Shop's Value
So you're getting ready to sell your diesel repair shop. It's as easy as listing the business and just waiting for offers to roll in. Right?
Unfortunately, that's not really the case, especially if you're wanting to sell your shop to a third party buyer. They will want to know everything about the health of your business to give themselves both a better sense of what they're getting into, as well as the perceived value of the shop. So you need to do your best to make sure that everything is in order on your end. And that means having your financial history ready for potential buyers to look through.
How your finances look tell buyers a lot about how the shop performs, as well as how much work they'll have to put into cleaning things up when they take over. It lets them know whether or not your shop is a good investment. And something as simple as whether or not your financial statements are well-kept can influence how a potential buyer sees the health of your shop.
So, do your best to get everything in order—make sure you understand just how your shop finances affect the value of your business and how to go about preparing your shop for sale!
If you're looking to build the overall value of your shop, check out our overview of value-building strategies!
Paying less for the parts you order can be another way to help your shop look more profitable. Call our ASE Certified Techs today for you diesel engine parts needs!
1. Understand the Value of Your Diesel Repair Shop
It's important that you have a good understanding of what your business is actually worth as you move toward the possibility of selling. This can prevent you from accepting a low offer simply because you didn't realize how valuable your shop actually is.
Conversely, it can help keep you grounded about what a realistic sale price actually is. That way, you're not holding out for an offer well above what your shop is actually worth, and never selling your shop.
It might be worth considering hiring an external valuator to take a look at your shop. This outside perspective can give you an unbiased estimate of the worth of your diesel repair shop, and having a respected, third-party valuation can be a bargaining chip for you in negotiations. Knowledge is power!
2. Prove Your Profits
People aren't going to pay a lot of money for a risky investment. They want to be sure that they're going to make the money back that they put into it. And the length of time it takes them to do so can affect the price they pay.
So it's up to you to prove to potential buyers how much profit your shop brings in, giving them a solid idea of when they can expect to turn a profit after the purchase. If it will take a while, you might end up seeing a discounted sale price.
This can come down to presentation. If you can't show potential buyers clear evidence of profits, your business will look like a risky investment, even if it's not.
Understanding your KPIs can help you to prove your profits. Read our article to learn more about 10 profit-boosting metrics you should be paying attention to!
3. Get Your Financial Statements in Order
You want to have clean books. Account for every dollar that comes in and out of your diesel repair shop. This goes hand in hand with proving your shop's profit. How can you expect to show buyers how much money your shop brings in if your books are a mess?
During the buying process, prospective buyers will look at every part of your financials to get a better understanding of how the business operates. The more organized your records, the better this looks for your shop.
If you aren't currently keeping good books, start. You might also be surprised at how much profit you're losing because you aren't keeping track of where the money is going. So it's not just about preparing for a sale, but it can help to improve your overall bottom line!
4. Understand the Profit Potential of Your Repair Shop
So not only do you need to know how much money your shop currently makes, you should have a good understanding of how much your shop can make. Do you have growth plans? What has been your average growth per year? Do you project this growth to continue? Based on what?
We'll talk about business growth more in depth in a later post, but it's something to be thinking about as you work through your financial records.
5. Work with an Accountant
A Certified Accountant can help you to make sure that everything in your books in is order. Most sources agree that you want to have clean expenses for at least the three years prior to when you sell your shop. The stamp of approval from a certified accountant that everything is on the up-and-up can help sway buyers.
So, if you don't use an accountant already, it might be time to find one. Especially if you want to sell your diesel repair shop in the next three years. With moves like this, it's better to plan ahead, and getting an accountant now can save you some time and headaches in the future—and it can actually make you some more money on the sale of your shop!
6. Cut Out Non-Business Related Expenses
It can be a temptation for business owners to write off everything they possibly can argue is related to their business when it comes time to do taxes. This isn't the best strategy, though, when it comes to getting your shop ready to sell.
If you're using shop profit to pay for things that aren't 100% business expenses (think your cell phone or perhaps a "company car") then you aren't getting the best picture of what your profits are. It might save you some money on your taxes every year by taking advantage of these business deductions, but it makes your shop look less profitable overall.
Now, we're not saying to take no business deductions. If there are expenses that are 100% related to the day-to-day operation of the shop, then by all means, continue to take them. We're talking about that gray area.
So, for at least the three years leading up to you selling your shop, you should cut out those expenses. Paying a little more at tax time can actually lead to a larger increase in the potential sales price.
While it might seem like a lot of work to put this much time into preparing your financial records, it is actually one of the biggest factors that determine what price you'll get for your shop. Buyers don't want to make a bad investment, so make sure your diesel repair shop is as financially sound as possible!
On the hunt for other ways to build profit for your diesel repair shop? Check out our Repair Shop Value Program to help you save money!