I’ve visited hundreds of shops during my career, and not much has changed over the decades. Years ago, you could find shops filled with work while another shop down the street struggled to make ends meet. Today, shops are busier than ever, but profitability is still an issue, and there’s worry on the horizon. We have an aging base of shop owners anticipating their golden years.
If you relate to the title, you’re not alone. Eventually, we all reach a time in our careers when we think about retirement. Unfortunately, we don’t always plan for it. Too often, I hear stories of shop owners ready to retire, putting their shops up for sale. Then after several months, they close their doors, sell their inventory and equipment, and walk away from the business they spent their entire lives building.
They’re perplexed by the whole affair. After all, they earned a great living for one or more decades, put three kids through college, and have a mortgage-free home. “Why wouldn’t my business be attractive to someone, especially one of the employees?” they think. The old adage, “People don’t plan to fail. They fail to plan,” comes front and center. In fairness, however, not all reasons for failure are clear.
Over the years, I’ve seen three reoccurring themes:
- The shop owner is a key person in the business – perhaps the key person.
- The business doesn’t report all its income in its tax return.
- They don’t have written processes and procedures.
Let’s look at each of these scenarios and why they’re a problem for selling a business.
The shop owner is a key person.
Well, duh! Of course, a shop owner is a key person. It’s been their baby for decades, and they oversee every aspect of the day-to-day operation. Their position isn’t so much the issue; they might be a rebuilder, service writer, or shop supervisor. Whatever their role, they do it better than anyone they can hire. At least, they think so. Consequently, they don’t try to fill that role, and the business won’t run well without it. It might be an ego stroke, but it’s not an easily sellable business if the company won’t run without them.
If you’re irreplaceable, and your business doesn’t operate well without you, by default, it won’t function well for a new owner. The answer here is to make yourself unnecessary. That’s a tough pill to swallow, but it’s vital if you want a business that’s attractive to a potential buyer. If you want to retire in the next few years, make this a priority. You may need a consultant to help with this, and that’s ok. Suppose you have years before that time comes. In that case, you still want to work toward making yourself unnecessary for day-to-day operations.
Now, the term “unnecessary” only applies to the roles of a rebuilder, service writer, or shop supervisor. The key role of the shop owner is to establish policy and culture. This may be the most essential yet underperformed role of any business owner. You may need help in this area, and that’s ok. You can find plenty of people at ATRA’s Powertrain Expo who can help you find your better business role. You might also get some ideas on partnering with a key employee. That’ll take time, perhaps years to execute, but industry consultants can help you with the details.
The business doesn’t report all its income in its tax return.
This happens more than we’d like to think. Of course, much of it might be innocent – fifty dollars here, a hundred dollars there, or an exchange of services that might seem like two friends helping each other out. Outside of the legality of it (which we’re not getting into here), it skews the financials and makes the business look less profitable than it is. The value of a company is a function of its gross sales and profits. Let’s stop for a moment and make a point. Gross sales reflect revenue. Net profits reflect how well the business operates. Two companies may have the same gross sales (potential) but vastly different bottom lines. Both are important, but gross sales matter most regarding business valuation. When a business under-reports its gross revenue, it lessens its value to a potential buyer.
In addition, a potential buyer will likely take your financial records (P&Ls, balance sheet, and tax returns) to their banker for review. The banker will want three years of records. If the business underreports revenue, it’ll under-represent its potential. If you’re in this position, it’ll take three years of work to get the financial documents to show the actual valuation of the business.
They don’t have written processes and procedures.
This is often a natural extension of the first two scenarios but involves much more. It contributes to making your business attractive to an investor. That’s right, someone outside the transmission-repair industry. Because of the failures mentioned earlier, the market for selling their business becomes limited to someone in the industry. And worse, it could only be someone who can fill their current role as a rebuilder, service writer, or shop supervisor. With this reality, the shop owner closes the doors and walks away. If they own the property, they’ll at least have something to show for their years of work and dedication to their business.
It might be time to look at a “Hail Mary” approach – converting to a franchise. This could be the quickest way to fix the deficiencies in your business and make it sellable to a broader audience. I’ve worked as a rebuilder for two franchise owners. One was a salesperson for an oil company, and the other was an optometrist. In both cases, they had saved for decades and invested in a new business that could support them and their family for the next several years. Neither knew anything about the transmission repair industry but learned how to run a profitable shop from the franchisor.
Initially, they worked as service writers while learning more about the business. Later, they hired their replacements and took a more passive role. Now their companies provide them with the retirement income they were seeking. A plan like this might give you two options: selling your business to an investor or keeping the business and having a regular source of income.
If you’re considering this move, here’s what you can expect. Franchise companies have procedures to assess the potential of a business location. They may or may not approve of your location as having financial potential. They’ll want to look at your financials (just like a bank). They’ll request photos of your shop or make a physical inspection to assess your business potential. Don’t be offended if they tell you that it’ll take a $20,000 investment to make your shop presentable, including corporate signage. They’ll ask for a deposit, and they’ll have a franchise fee. You’ll get an idea of your profit potential and the value of the business once it’s established.
You’ll have to operate it for at least three years, so you have financial reports for a potential buyer. And the franchise will help you sell it when the time comes. As I said, you might also decide to keep it and enjoy a semi-passive income. If this appeals to you, you’ll want to start researching which franchises to consider. Of course, there are national franchises like AAMCO, Cottman, and Mr. Transmission (which are called Multistate Transmissions or Dr. Nicks in some parts of the country).
But there are also regional franchises that might appeal to you. In the eastern part of the country, there’s Lee Myles. In Tennessee and surrounding areas, there’s Coleman Taylor. Up north, you have Kennedy Transmissions, mainly in the Minneapolis area.
A Canadian franchise, Mister Transmission is mainly in the eastern part of Canada but has locations in every province.
That far-away imagery of selling your shop is closer than you think. With a bit of planning, you’ll be ready. Remember, you’re selling a business, not a job. Work at making it appealing to the general population, and you’ll turn that hill in the distance into a smooth road.
Hi-Rev For Small Business, written by Amazon Bestselling authors, Dennis Madden and Jim Cathcart, covers a range of simple techniques and processes to increase business performance and profits. For questions about the book, this article, or your business you can contact Dennis or Jim at: info@hi-rev.net. You can find the book at the ATRA Bookstore, Amazon or Barnes & Noble.
