This review from a business broker discusses the sales process for collision repair and body shops. The industry is incredibly stable with an excellent barrier to entry for prospective buyers, which creates demand for collision repair and auto body repair shop owners who are planning their exit strategy.
About The Collision Repair Industry
The collision repair and body shop industry primarily engage in auto parts repair and replacement for vehicles that have been in an accident or have been damaged in other ways (i.e. storm damage). New car sales are expected to decline, which means more used car purchases and a higher propensity among consumers to fix dents and other auto body concerns. Consequently, there is expected industry growth. Here are the industry numbers:
- There are approximately 113,000 collision repair shops in the U.S.
- There was a 1.1% annual growth for the collision repair industry from 2018 to 2023
- The collision repair industry generates $56.4 billion in annual revenue
- The annual profit for the collision repair industry is $4.5 billion
- Experts predict a sizable increase in annual growth (1.1%) from 2023 to 2028
For buyers, it is important that they know the role insurance companies play within the industry. For many collision repair and body shops, profits are largely reliant on subsidies from insurance companies. For established companies with good relationships and contracts with insurance companies, the industry provides stable profits and growth potential.
How to Value a Collision Repair and Body Shop
There are three types of business valuations — market-based, income-based, and asset-based. For exit strategies, business brokers generally use a market-based approach. This approach looks closely at your financial information (which is the most important consideration for prospective buyers). Notably, this includes a calculation of your seller’s discretionary earnings (SDE). Acquisition multiples, also called industry multiples or rule of thumb data, are also used. Here is the rule of thumb data for the collision repair and body shop industry:
- Collision repair and body shops sold between 2.03 and 2.59 times the Seller’s Discretionary Earnings (SDE). Companies with net sales above $5 million in net sales sold for as much as 12.29 times their SDE.
- Collision repair and body shops sold between 3.19 and 5.32 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Collision repair and body shops sold between 0.35 and 0.72 times the annual net sales. Shops with under $5 million in net sales sold for approximately 0 .49 times their annual net sales
Your location plays a key role in your business valuation. Specifically, areas with relatively low competition and high demand for collision repair and body shops have higher valuations. Your growth potential, workforce quality, equipment quality, diversity of income, and purpose for selling influence your value as well.
A Step-by-Step Guide to Selling a Collision Repair and Body Shop
There is a general process that you can expect when selling your collision repair and body shop, although the process is unique for every seller. Your business broker can help you put together a personalized sales strategy. However, the most common steps are:
- Hire a business broker
- Determine your company’s worth
- Prepare your financial and legal documents
- Find a qualified buyer (in a confidential manner)
- Allow the buyer time for due diligence
- Close the sale
Below is a closer look at the process with details about how you can prepare for each one. Having an understanding of the process before you begin can help alleviate stress and further ensure you achieve the value you deserve.
Stage #1: Hire a Business Broker
First and foremost, you will want to find professional assistance. Selling a business is far different than other types of sales as you must maintain confidentiality. Your business broker brings your business to the market discretely, so news of your sale never becomes public until after a deal is complete. Perhaps more importantly, your business broker helps ensure you sell for fair market value. Brokers understand how to determine the worth of a company, and they work hard to ensure you receive qualified offers without a prolonged time on the market.
Stage #2: Determine Your Company’s Worth
We discuss valuations for collision repair and body shops at length above. As discussed, your valuation will determine when and for how much you sell your shop. It is not always best to go to market right away, and your broker can help you plan a personalized sales strategy and timeline.
Stage #3: Prepare Your Financial and Legal Documents
This stage is essential, although far too many business owners skip this step and experience issues later on in the sales process. The buyer will request a range of documents during due diligence. Preparing for these requests helps ensure you provide them in a timely manner and reduce the time it takes to close the sale. In addition, your business broker may need many of the documents to best determine your collision repair and body shop’s value.
Notably, you will need to prepare at least three years of your tax returns, profit and loss (P&L) statements, balance sheets, a list of your equipment (and their purchase price), insurance policies, lease information, licenses, and any additional documents that may be requested or necessary during negotiations, due diligence, and closing.
Stage #4: Find a Qualified Buyer (in a Confidential Manner)
Your business broker should handle much of this process for you. They have access to private channels, networks, databases, etc. that allow them to advertise and market your business with hundreds (or possibly thousands) of potential buyers. As you receive offers, your broker will also screen them and help you understand all details. Ultimately, this stage ends with a letter of intent (LOI) from the buyer that allows you to best reach your exit strategy goals.
Stage #5: Allow The Buyer Time for Due Diligence
As discussed, you will need to provide a range of financial, legal, and operational documents during this stage. The faster you are able to provide the necessary documents during due diligence the faster you can get to closing. Also, your broker should work to ensure a fast due diligence timeline and should ensure a structured process is followed. Otherwise, due diligence could last for far longer than necessary and increase the risk of major setbacks or deals falling through.
Stage #6: Close The Deal
Lastly, you will attend the closing and attain final signatures for the purchase agreement. You will also transfer the business sale during the closing stage as well. At the closing table, you and your attorney will review all details of the purchase agreement one final time. Afterward, you can move forward to whatever is next for your exit strategy. In many cases, the completion of the sale is the final step.
Schedule a Free, No-Obligation Consultation
Are you considering selling your collision repair and body shop? Our business brokerage and consultancy here at Sigma Mergers is here to help you get started with a free, no-obligation business valuation to determine how much prospective buyers are willing to pay for your shop, along with answering any questions and addressing any concerns you may have. Contact us today!
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!