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

June 14, 2023

Read time: 3 min

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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 (or TOBx4).

So, if you took home an average of $50,000 a year for the past three years, the price of your business will likely be valued around $200,000. Keep in mind this TOB value does not include property value.

For those who are reading this with the hopes of selling in the near future, that valuation method might seem low to you. And it is.

The good news is that you can go above and beyond the industry standard, and sell your shop for a higher value, if you stay on top of your numbers.

Not only will diligent reporting and good customer service increase your TOB, but you’ll also have more leverage when negotiating offers from buyers.

Here are three steps you can take to improve the valuation of your business and secure the money that you worked hard to earn.

Selling your automotive business

1. Be Tenacious About Gross Profit Margins (GPM)

The old business adage said it best: “It’s not what you make, it’s what you keep.”

Potential buyers know the ins and outs of how to value an automotive repair shop that’s on the market. They’ll want to see what your shop’s gross profit margins (GPMs) are, not your shop’s revenue.

Your shop’s gross profit margins will give them an idea of what you were able to take home—and by extension, what they can expect to be able to take home if they go through with the purchase.

Here are some strategies to start increasing your GPM today:

Increase prices on your parts or labor. A parts matrix and a labor matrix that’s built into a cloud-based shop management system can help you mark up your prices without sticker-shocking your customers.
Ensure all cores and unused parts are returned. Reports within a shop management system, such as Tekmetric’s Parts Purchased Report and Parts Usage Report, can give you a clear picture of how much you’re spending versus how much you’re using.
Cease ineffective marketing campaigns. Tracking the ROI you’re getting from various marketing campaigns by having your service advisors track marketing sources on each repair order can help you pinpoint what’s working and what’s not so that you can put your money where it will yield the best results.

Tekmetric’s various built-in reports can give you a clear picture of what your margins are, so you can keep adjusting your strategy to get even better margins that will impress prospective buyers.

2. Increase Your Average Written Repair Order (AWRO)

In the majority of cases, your AWRO can and should be higher than you think.

Let’s do some quick math. It costs drivers an average of 10 cents a mile to maintain their vehicles. If someone drives 15,000 miles a year, and each mile costs them around 10 cents of wear and tear, that person is looking at $1,500 in repairs each year.

Even if we stay on the conservative side, that person is looking at spending $1,000 on annual maintenance.

When you consider how often each customer visits your shop annually, do those numbers sound in line with your shop’s current AWRO?

By running thorough inspections on each vehicle, your technicians can catch all potential issues, including budding issues that will need to be addressed down the line.

Digital vehicle inspections encourage technicians to give customers a holistic overview of which issues need work immediately, which issues will need work soon, and what’s good as-is. And with these more thorough inspections, your service advisors can maximize their AWRO.

Be careful not to prioritize a high AWRO at the expense of customer trust. One great way to balance AWRO with customer trust is by showing customers what work needs to be done ASAP, and what work can wait.

3. Work to Maintain an Excellent Social Reputation Everywhere

Prospective buyers are going to look at your ratings on various platforms, including Google, Facebook, Yelp, Better Business Bureau, Indeed, and Glassdoor.

Why?

Because buyers want to invest in a shop that has a strong social reputation among customers and employees, and by extension, the broader community.

Buyers might feel uneasy purchasing a shop with bad ratings. They might back out of the sale, or even try to pay less for the purchase, citing the low ratings as a reason why.

But when you have high ratings on these platforms, you’ll have more leverage to negotiate a higher price.

👉 Ready to grow your automotive business? [Book a personalized Tekmetric Demo Here]

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Accrual Basis of Accounting for Auto Repair Shops

Read time: 3 min

Transparency within the auto repair invoice process goes a long way. Most customer will feel uncertain about approving expensive repairs if they don't truly understand the need for them. That's why it's up to your shop to foster a trusting relationship by clearly showing customers the issue, and the need for a repair.

The right invoicing system will improve your shop’s workflow, save your team time, enhance your customers’ experience, and provide you with peace of mind.

Here’s how Tekmetric’s Cloud-Based Shop Management System provides seamless shop management that leads to frictionless payment processing:

A service advisor can create a repair order and dispatch it to a technician to run a digital vehicles inspection (DVI).
The technician conducts the inspection.
The service advisor sends the customer a DVI report, which will outline all the findings.
The customer can approve or decline individual line items on the repair order directly from their smartphone.
Once the customer finishes scrolling through the estimate, designating the jobs they approve and decline, your shop has the go-ahead to begin the repair(s).
Once repairs are complete, there’s a digital record of exactly what the customer approved. That way, when it’s time to pay, there are no surprises.
Once the customer pays with their preferred method, they can look back over the receipt—from their computer or smartphone—and feel confident that your shop did exactly what you said you’d do.

After a job is completed and payment is received, all the details from the invoice and repair order become part of your reports and customer history in Tekmetric.

Tekmetric’s cloud-based automotive invoice software has designed the entire process to reduce bottlenecks, build trust, and ensure that customers know exactly what to expect.

By moving smoothly from one step to the next, your team will be able to boost their efficiency, manage their workflow, and spend the extra time building rapport with customers and getting their cars back to good working order.