Auto Body Ownership: The Impossible Dream?

Auto Body Ownership: The Impossible Dream?

To get past the daydream of opening your own shop, you’ll need a blueprint to pave the way.

Many collision technicians and managers hope to own their own shops one day, but most never get past the daydream. Why? Because it takes courage, patience and money — not to mention nerve and bravery. 

A Blueprint

If you do want to own your own shop some day, it takes a blueprint to pave the way. 

First, determine if you want to start from scratch or buy an existing business. I recommend purchasing an existing business. Why? Because you can assume the existing zoning, permitting and town approvals of a prior business — all an exhausting process when starting a new business. Also, the established company has a history and return clients. For better or worse, it has equipment at a depreciated cost. And typically, the startup cost is less than starting from scratch.  

Personal Balance Sheet

So now you’ve got your sights set on a shop and can see the business sign in your mind’s eye. First, take stock of your personal balance sheet. How much do you have in savings, retirement and assets (home, property, savings)? Get a real handle on your personal expenditures and the barebones expenses of what’s needed the first six to 12 months of ownership. You must have three to six months liquid (cash or checking) to cover the ramp-up of the new business.

Risk

Next, determine your comfort risk — and maybe talk about that with your significant other who may or may not be footing the bill as you embark on this journey. Are you willing to sacrifice your retirement account and pay the penalties (10%) and income tax on an early withdrawal before age 59.5? Could your venture be applicable to a Rollover as Business Startup (ROBS) withdrawal that allows you to withdraw 401K funds without penalty? Are you willing to sell your home? Are you willing to pledge all, some or little to the business’s success?

Finding Your Shop

Once you’ve established your risk tolerance and secured your emergency fund, you’ll need to find a suitable shop to purchase. Some may already have a shop in mind; some may not. Fortunately, the majority of owners in the industry are nearing or over the age of 50. According to the U.S. Census Bureau, 70 million baby boomers are set to retire by 2030. That means a lot of shop owners in your area — wherever you are — are looking for an exit plan. Sometimes the easiest and cheapest way is to approach the owner and have that initial conversation. Or, hire a business broker to help you track down the body shop of your dreams. Many have success by reaching out to friends and relations. 

Once you’ve identified the shop, request the profit and loss (P&L) statement, balance sheet and last three years of taxes. In these documents, you’ll want to see evidence of financial stability. Look for:

  • Positive cash flow: Did the company show a profit the last few years?
  • Owner salary: How much did the owner pay him- or herself? His or her spouse/children?
  • Add-backs: What is the current owner paying for that would go away with the sale? (Boat, condo, personal insurance, personal items, etc.) 
  • Anticipated income after buying the shop and how to stabilize after the transition: i.e. How much money can you make after you pay all the bills and business loan? 

Torque Financial Group offers complimentary business valuations if you’re looking for clarity and trying to determine the health of a business before, during and after the business acquisition.  

Financing

Next, determine financing. Will the purchase be financed through a bank or will the existing owner offer to hold the note? 

If using a bank check, make sure your bank is affiliated with the local Small Business Administration (SBA). Oftentimes, at the 11th hour of financing or 30 days before the close, a bank can request a life insurance policy as collateral up to the value of the note. In the post-COVID world, we’re seeing anywhere from a 60- to 90-day turnaround to place a policy. Get ahead of the potential-to-delay closing and review life insurance quotes up to the loan amount. 

It’s also advisable to create a written business plan. This is an opportunity to showcase your years of experience in the industry, a business growth plan, what you hope to change and achieve, and — most importantly — how you’ll do it. Share this with your banker to help differentiate yourself from another file in a towering pile on someone’s desk. 

If you decide on seller financing, have your attorney review the documents. Ask about creating a buy-sell agreement or something that protects you in the event the seller doesn’t outlive the finish line. 

Have a solid financial plan. At Torque, we craft written business plans that help our clients navigate the roadmap to body shop ownership. We help make assessments and analyze the financial levers in the decision-making process by weighing risks, examining balance sheets and, ultimately, helping you evolve from a startup to a growing, thriving business. 

Summary

Have patience. That first shop you approach may not be the one you finally end up with. You may make concessions or vice versa. It can take over a year to close on a shop, so patience is often the hardest step of all. 

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