Tire stores are receiving excellent valuations as they are in high demand among investors. This review from an experienced business broker discusses the process for determining the value of your tire store and selling your store for fair market value.
About Tire Stores in The United States
Tire stores in the United States primarily retail used and new tires. They may also provide tire change services at the store as well, along with tire diagnostics. Some tire stores may also additional services such as batter testing and replacement. In rare cases, tire stores may also provide basic mechanic services such as tire rotations, oil changes, etc. Here is the most recent tire store industry data:
- There are approximately 34,190 tire stores in the U.S.
- There was a -1.3% annual growth for tire stores from 2018 to 2023
- Tire stores generate $36.7 billion in annual revenue
- The annual profit for tire stores is $770.4 million
- Experts predict a slight increase in annual growth (1.3%) from 2023 to 2028
Most vehicles require at least two or three sets of tire changes in its life. Consequently, there is no shortage of demand for tire stores. There has also been a heavy amount of mergers and acquisitions within the industry over the past several years due to demand for tire stores.
About The Big O Tires Franchise
Big O Tires is one of the largest tire store franchises in the country. They receive valuations equal to or greater than the average tire store. There are approximately 425 Big O Tires franchise stores in the United States. They also provide auto service and repair services in addition to tire replacement.
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How Much Is My Tire Store Worth?
There are many factors that may influence the worth of your tire store. This includes financial and non-financial factors. For instance, your unique competitive advantage, location, the reason for selling, and growth potential may all play a role. However, the primary considerations for a market-based valuation are your seller’s discretionary earnings (SDE) and the industry rule of thumb data (industry multiples). Here is the rule of thumb data for tire stores:
- Tire stores sold between 2.18 and 3.14 times the Seller’s Discretionary Earnings (SDE)
- Tire stores sold between 2.18 and 3.72 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Tire stores sold between 0.35 and 0.50 times the annual net sales
How Much Are Big O Tire Franchise Stores Worth?
Big O Tire franchise stores receive similar valuations as non-affiliated tire stores in the U.S. The same process applies, which includes using SDE, EBITDA, and net sales along with rule-of-thumb data. Here are the acquisition multiples for Big O Tire franchise stores:
- Big O Tire stores sold between 2.11 and 3.14 times the Seller’s Discretionary Earnings (SDE)
- Big O Tire stores sold between 2.18 and 3.72 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
- Big O Tire stores sold between 0.33 and 0.50 times the annual net sales
A Step-by-Step Guide to Selling a Tire Store
There are common steps you should prepare for when you sell your tire shop. These steps include:
- Determining your company’s value
- Preparing legal and financial documents
- Marketing your company and finding a buyer
- Facilitating the due diligence process
- Finalizing the sale and transferring ownership
Below we take a closer look at the sales process for tire stores. You should work with a business broker to ensure you receive a personalized process and strategy recommendation.
Determining Your Company’s Value
As discussed, you first want to choose a business broker and receive a professional market-based valuation. Your company’s fair market value (FMV) determines your overall strategy, including how much you ask for on the market and when you list your tire store for sale. A professional valuation from a respected and qualified business broker also provides more leverage during negotiations.
Preparing Legal and Financial Documents
Far too many tire store owners skip this step before seeking a buyer. This, unfortunately, leads to many issues with the sales process. First, it can make it more challenging to find a qualified buyer as they may not trust your valuation if you have not collected the necessary documents.
Secondly, you may experience major delays and setbacks during negotiations, due diligence, and closing without the proper documents. Your broker can help you collect the right documents, such as your tax returns, P&L statements, cash flow statements, balance sheet, inventory list, list of vendors, list of employees, rental lease or appraisal, and insurance policy.
Marketing Your Company and Finding a Buyer
Once you receive a professional valuation and prepare your legal and financial documents, you can bring your company to the market. This may involve the preparation of a sales memorandum that prospective buyers review. A confidential process is essential during this stage, so your broker should only utilize private channels and methods. If necessary, they may also recommend a blind listing or the use of non-disclosure agreements (NDAs). Ultimately, you will negotiate a deal with a buyer that allows you to best reach your sales goals and have them sign a letter of intent (LOI) to lock in the purchase terms.
Facilitating the Due Diligence Process
Next, the buyer conducts due diligence, which is the stage after the LOI and right before closing. During this stage, the buyer may request certain documents such as your tax returns, profit and loss (P&L) statements, inventory sheets, list of employees, list of vendors and customers, and more. They may also provide a list of questions for you to answer to help them learn more about your tire store. In some cases, buyers also request to see the tire store in person and monitor daily operations. A meeting with your top employee(s) may be arranged as well.
Finalizing the Sale and Transferring Ownership
Lastly, you will close the sale. This involves the buyer and the seller both signing the purchase agreement. The payment is sent during closing as well and the business is officially transferred over to the buyer. Employees and customers are also notified of the change in ownership during the closing process as well.
Are You Considering Selling Your Tire Store?
Sigma Mergers and Acquisitions helps tire stores sell for fair market value. Whether you are affiliated with Big O Tires or operate an independently-owned tire store, we are here to help you make informed decisions and sell with confidence. If you would like to learn more about how our team can help you receive fair market value for your tire shop, schedule a consultation 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!