subject: The Body Shop how to assess [print this page] The Body Shop how to assess The Body Shop how to assess
Many owners of small Body Shop have asked, How do I appraise my body shop? In the last month, I was asked to do two appraisals on body shops. The first assessment was to help the dissolution of the partnership, the second appraisal was for marriage dissolution. (That's what lawyers call a divorce.) Would you know how to assess the value of The Body Shop?
Before I begin, I would like to make a comment. Whenever a CPA has done an evaluation of a body shop, I think their opinion of value is well above the actual value on the market will pay. This is not because the CPA does not know what they do because they have, it's just that the market places a much higher risk on buying a body shop that Accountants do. The following is an excerpt from one of these assessments.
The three ways of valuing a business one. The evaluation method ASSET. This method is mainly used when a body shop is less than $ 400,000 per year in gross income and the seller makes the salaries, but no real benefit beyond what would be paid if working for another. On this size business, a buyer is willing to pay for the assets of the company, but little or nothing for goodwill. The equipment is usually worth between $ 50,000 and $ 100,000, depending on how many machines under the company owns and how nice a spray booth the business owns.
I have seen some stores sell more than the above, because they have a truck spray booth or another business attached to the main activity. Examples of attached activities may be a repair shop or towing operation. Also the location, size and quantity of rental properties will influence the value of any business, to some extent.
2. The second method, which I call the GROSS sales method. It is used when the sales are over $ 1,000,000 per year, but the profit is unknown or finance are not available or reliable. Because of the experience, a body shop buyer can make a reasonable estimate of future profits, if they have basic information. The basic information includes rent, source of business (DRP, street, or a rental car), and the appropriateness of the location.
When this method is used, the value seems to be about 3 months sales or 25% of sales last month 12. This method is not very reliable on businesses with sales under $ 1,000,000, because the question of being profitable is very questionable. Why is this a breaking point $ 1,000,000 in annual sales? Multi-store buyers of well paid managers, so many figures of their breakeven point is around one million.
Less than $ 1,000,000 in sales is not worth their time. Of course, we know there are exceptions to the rule. Some exceptions are A. When a new place will be a satellite store to a larger location. B. The buyer must have a location in a specific area to please a DRP. C. To get rid of a competitor.
3. The third and most used method of evaluating any business, including body shops, is the method NET PROFIT. This method is based on the idea that a company is worth what it generates in profits and benefits to an owner. Body shops, like many other small businesses, often do not show a profit at the end of the year. Strange how so many businesses of different sizes simply find themselves with little or no profit. What I find truly amazing is that the IRS does not audit more businesses then they currently do.
Due to show the benefits the poor, in the books, it becomes very difficult to use the net method of assessing many small businesses. Fortunately for me, I can often find hidden profits, business, adding books, items we call the benefits of the owner. These include: salaries of owners, if a corporation. cars and all related costs used by the owner and his family are struck against the business, fife insurance and health insurance for owners.
Depreciation is also a hidden profit that is usually added to the taxable income to help build the total owners benefits. And finally, personal services, telephones, travel, etc. that are deducted from the income tax return, but are not really the costs of running the company.
Having said all this, what is the value of a company based on the method of net profits? automobile companies, especially auto body shops seem to sell between 1.5 to 2 years adjusted profit (book profit and the owners added benefits in). the largest body shops doing over $ 2,000,000 in annual sales may sell for much more, because the owner did a lot more money, not just his salary and a buyer to consider part of a benefit return on financial investment.
large body shops that are purchased by public corporations are evaluated primarily on their return on investment (Percentage profit that is made on the purchase price in cash of the company.) These big buyers can afford to pay between 5 times and 10 times annual net profit after deducting all officers' salaries and benefits.
Often these, public corporations, high purchase prices include two important restrictions, which explains why they buy the company first. First: The company was bought for little money or not. They restricted shares of a company that is not negotiable for two years. And second: The management is required to stay and lead the company during a certain period of years.
The bottom line, as I see it is that you have sold your soul, not your business. One last comment on selling to large businesses, heaven help the seller who sold his company for shares in a company or the obligations of buyers and the company goes bankrupt or purchase the stock market crash. I had a close friend sell his company for mostly cash and some seller carry financing in December 1997. By February 1998, the purchasing company was bankrupt, making the paper my friend has nothing. CONCLUSION: Assessment of business, body shops in particular, is an art not a science. No two people to appreciate the value of a business suit. I am surprised that the same thing one buyer thinks is a great asset is what another buyer thinks is a major negative impact. Differences of opinion are what makes life interesting.