The automotive aftermarket industry in the US is expected to reach $316 Billion in 2020. A growing number of Americans are aware of the importance of preventive maintenance and scheduled servicing to maximize their vehicle’s lifetime value. And as a result, the average car in the US is 11.5 years old. Auto repair businesses are riding high on the increasing demand for their services.
But do you know how much your auto repair business is worth? Knowing how much your business is worth can help you get investors and bank loans. Let’s look at the most important metrics you should measure to value your auto repair business.
Periodic car count
Like how footfalls can be a useful metric to measure how well a retail store is performing, the number of vehicles coming into an auto repair business can be used to measure its performance. It indicates how busy your shop is, its growth potential and from where revenues are derived. Keep an exact count of the number of vehicles coming to your shop and these numbers can be used to generate weekly, monthly or other periodic reports.
Average repair order
The average repair order is how much your average customer pays for your services. Compare your shop’s average repair order with the industry standard to measure the effectiveness of your services. This can also give insights into how you can increase sales.
A business is more desirable when its revenues are high and has the potential for growth. Calculate how much revenue the auto repair business has brought in over the past couple of years. Has it been improving year on year? You can also compare your revenue with the industry standard through a business broker.
Labor costs make up a good portion of an auto repair business’s operating expenses and should be carefully monitored. Compare your shop’s ratio of labor costs to sales with the industry standard as it is essential for the valuation of your auto repair business.
Wage payment method
Are your technicians being paid hourly or as per a flat rate system? Auto repair shops following the flat rate system pay their technicians based on the national standard of the amount of time it should take to complete a particular task. For example, if the national standard for fixing a punctured tire is 20 minutes, the technician will be paid for 20 minutes regardless of whether the work was completed in 15 minutes or 45 minutes. This system can boost productivity if used correctly. As per the hourly wage payment system, technicians are paid for the number of hours that they actually work. The remuneration method you follow will impact the financial books and in turn, impact the overall worth of your auto repair business.
Cost of parts and equipment
The cost of automobile parts and repair equipment are to be carefully monitored because it has a direct impact on your business’ bottom line. While evaluating the worth of your auto repair business, look at the ratio of the costs of parts and equipment to revenue. Whether you have decided to buy or lease auto repair equipment should also be taken into consideration.
Owner’s discretionary income
Your shop’s net income might often be insufficient to measure its overall performance. A more accurate measure can be arrived at by performing a financial recast on the net income figure to calculate the owner’s discretionary income, which is a much better indication of the owner’s actual income.
The shop’s location
For any shop with a physical presence, location is one of the most important factors that influence the number of customers coming in. Your auto repair business is worth more if it is located in a place that makes it highly visible with a lot of drive-by traffic. Also, consider the price of real estate both (both present and future) in the area while calculating the worth of the business.
Number of lifts, bays and parking lots
The number of lifts, bays, and parking lots indicate the current and future capacity of the auto repair shop to accommodate vehicles. Having extra space means that your business is capable of meeting higher demand in the future. For example your shop’s growth potential will be limited without extra parking space. If you wish to immediately install extra lifts or similar equipment, you can always get automotive care business loans.
Age of the business
The longer you have been in business, the better. For example, a 20-year-old business is worth more than one that’s been around for 5 years. This is because people perceive older business to be better experts at their work than comparatively newer ones. The reputation that the business has built throughout this period is also important.
The effectiveness of your current marketing efforts plays a part in calculating how much your auto repair business is worth. If your advertisements are working and people (or vehicles) are coming into your shop, it is a good sign that business can be improved even more in the future. Consider this factor while valuing the worth of your auto repair business. Also, look at ways with which you can improve your auto repair sales during winter and other off-seasons.
It is just a matter of time before every business owner asks “How much is my business worth?”. It is an important question because it will have a profound impact on both the personal and professional aspects of the business owner’s life. Knowing the worth of your business provides a perspective from which you can plan the future course of action for the business.