5 Things to Consider Before Retiring or Selling Your Automotive Business
When speaking with automotive business owners, I am surprised to hear how much Super and income producing assets have been accumulated and set aside. Even though they are mostly quite modest in nature or sadly what I call “smoke and chewy money”, for a lot of folks in the automotive industry their only chance of setting aside a significant amount of money for retirement is by selling their business!
This may not turn out well for many business owners.
Let’s look at some really important factors…
1. Is my Automotive Business a Business that is ready to sell?
Do you own a business that has a proven system, and operating procedure that the business runs by? All buyers want a turn-key business that has reliable cashflow, profit that will give a “return on investment”. The buyer needs to know they can make money and that they have a loyal herd of customers. They want to know that there is a system to train staff. If it’s all in your head and there is no way to prove to the potential buyers (New Owner) that the business will have the same consistent success after the sale, then you are doomed. The more systemised the business and the less reliant on the current owners – what I call (owner dependency) – the better the multiples of profit and the sale price. Multiples can vary from 1 x, 2x, 2.5x to 3 times depending on the systemisation of the business. Having established an adjusted net profit, you need a multiple. The challenge here is to assess the many variables that can affect the multiple;
- Financials: How is the business trading? Are the accounts in good order?
- Profitability / Margin: Is there a healthy margin? Are the profits vulnerable?
- Balance Sheet: How do the balance sheet ratios compare with sector norms? Any uncertainties?
- Owner Dependency: Is there a strong team in place? Can the business survive the owner’s departure?
- Contracts: Another important factor in the stability and therefore the multiple.
Does the business have any contracted income and therefore, forward visibility of earnings?
2. Who is doing what in the business, who is performing the key roles within the business?
Currently, are you working as a technician, at front of house, as a service advisor or entering invoices and doing bookkeeping? Are you paying yourself the same salary you would have to pay someone to do the job you are currently fulfilling? It is imperative that you demonstrate that the business can still make a great profit even if you were paying another person to carry-out that function.
3. What requires house cleaning?
Are there outstanding liabilities? Outstanding ATO taxes? Outstanding leases? Outstanding warranty issues? Neither you nor the buyer/new owner will want this type of thing on their plate as things move forward, this could potentially cause you to lose the sale.
4. It’s important to show you have A Profitable business!
Some accountants often encourage businesses to spend money at years end to show a smaller profit and in doing so you end up paying less in tax. An issue with that is you basically spend an entire dollar to claim thirty cents back? What? Spend .70 cents to save .30 cents!
Other accountants will encourage you to have a three to five-year plan to get the house in order and sell, they’ll recommend the size of profit you should be aiming for. You should know up front that this strategy could see you paying larger taxes over a few years. There may be add-backs that come into play… An add back, is an expense that is added back to the profits (most often earnings before interest, taxes, depreciation, and amortisation, or EBITDA) of the business for the express purpose of improving the profit situation of the company. Your accountant may encourage you to pull back on spending habits that can impede on profits. And if you have an up to date business, they might even suggest no new capital equipment purchasing.
5. Is Your Business a Stand-Out amongst all the other businesses out there that are for Sale now and in the future?
I have spoken to owners who think about selling at the 11th hour, when the business is on the way down. The absolute best time, the best plan is to sell out when the business is pumping. It is important to prove to the new owner that it starts, idles, runs and drives well, that it is making great sales, has money in the account, pays all of its employee entitlements, it puts 15 to 20 percent of sales in the owners pocket, this is the best time to sell and retire. If the time is not ripe for you during these times, keep tucking away the profits until you do find a buyer, it’s your call!
At Automotive Business Coach we can assist with and provide loads of resources which include agreements, mentoring and coaching to automotive business owners to get the most out of their automotive business. For more knowledge and information on how to place and prepare for the sale and retirement plus other compelling business applications, Go To: