BY EMILY KLINE
PHOTOS COURTESY OF MWACA
AS A BUSINESS OWNER, it is important to plan for the future. Staying one step ahead is vital because it can help ease stress and minimize the number of problems a shop owner might face when it comes time to transfer ownership of the business. Unfortunately, succession planning is often overlooked in the automotive industry because owners are focused on solving immediate problems in their shops every day, leaving little time to think about the future.
MWACA spoke with Greg Bunch, a senior consultant at Transformers Institute, and Troy Kaplan, the previous owner of TGK Automotive and currently a senior consultant at Transformers Institute, to find out what key factors shop owners should focus on regarding succession planning.
DEFINE YOUR ENDGAME
Before you start the process of succession planning for your shop, you need to figure out your desired outcome. Do you want to sell your shop and move on? Or, do you want to remain involved with your shop even after you sell it?
“If you're selling to retire and be done, the end goal is to have enough money to retire and not have to work,” Kaplan said. “To do that, you need to figure out how much you will need to sell the company for and ensure you have everything you need to achieve that.”
Weighing the pros and cons of different succession paths is essential to plan for the potential outcomes. If your goal is to sell your shop, retire, and walk away, you’ll likely get the total sum of money at the time of the sale. However, if you sell the shop to a family member or employee, you’re taking on more financial risk, but you still get to be part of the shop, its people, and its legacy.
“If you sell internally to a family member or an employee, more than likely you’re going to be financing it, and they're going to give you monthly payments," Kaplan said. “You're going to have to make sure that they continue to operate that business successfully and properly so they can afford to continue paying you.”
Defining an endgame is crucial because it will help you figure out how to transfer ownership gracefully and happily, and with no loose end.
FIGURE OUT WHO YOU’RE SELLING TO
Bunch advises that shop owners think about who they want to sell their shop to in the future. Identifying the most likely buyer will help determine how to proceed with planning.
“Do you want to sell to an employee?” Bunch said. “A family member? To a consolidator? I think determining who will be the most likely candidate to buy your shop is the right place to start.”
Consolidator
If you want to sell to a consolidator — a person or company that aims to integrate smaller businesses into a single, larger company — you will need to ensure your shop has the specific qualities they are looking for.
For example, if your shop is in a prime location right off the exit of a busy freeway or next to a car wash or gas station, consolidators in your area may be looking for good shop locations. Knowing your shop already has the key characteristics consolidators are looking for will allow you to allocate more time and resources to customers and employees. You won't have to spend as much time priming your repair shop to fit a broad range of requirements of multiple unknown buyers.
Family Member/Employee
If you want to sell to a family member or know that an employee is interested in buying the shop, make sure you have the proper documentation, a good mission statement, and systems and processes in place.
- Proper Documentation: Ensuring your employees are properly certified and that your shop has the correct ownership documentation is necessary because it guar- antees safety for your employees and customers and makes the process of transferring easier for you and your successor.
- Good Mission Statement: A good mission statement is important because it informs your successor of your legacy and will continue to create a positive work environ- ment even after you are no longer the owner.
- Systems and Processes: Creating an efficient and effective workflow ensures operations run smoothly and remain profitable. By having clearly defined systems and processes, you can help your successor slide into their new position with ease.
If you don’t personally know the individual inter- ested in buying your shop, it’s important to get to know them and under- stand what they value. When Kaplan was looking to sell TGK Automotive, he wanted to find a buyer that cared about his employees’ well-being.
“We had 286 employees, and I wanted to ensure that after we sold, my employees wouldn’t come in and be treated differently,” Kaplan said.
By knowing who you want to sell to, you can spend more time and attention honing specific attributes your buyer is seeking.
DON’T PLAY WITH MONEY
“No matter who you sell to, you must have good and clean numbers,” Bunch said. “No playing games. We see all the time that people either don't have good numbers or play games with their numbers. You’ve got to have good numbers to sell your shop at a high value.”
Maintaining accurate financial records is a key factor in maxi- mizing the value of your auto repair shop during the selling process. If buyers discover that your business's revenue isn't accounted for, that results in a troubling perception of you and your shop.
“If a buyer goes to interview a shop that wants to sell, and they know that not all the money that comes into the business goes to the bank, you're just telling the buyer that you're stealing from your own business,” Bunch said. “They can't pay you for something you've already taken out.”
Additionally, if you’re planning on selling your business in the next couple of years, it is crucial to be mindful of how much you spend on new equipment.
“You're probably not going to get that money back from buying new equiptment, so if you can fix something or keep it in service for a couple more years, that's better than going out and buying new stuff,” Bunch said.
ENHANCE THE VALUE OF YOUR SHOP
Your shop needs to be in good condition before you start the process of selling it. Just like you would clean and wash your car before selling, you should do the same for your shop. Adding a fresh coat of paint to the exterior, throwing out the junk, and cleaning up the inside can make or break the potential buyer’s first impression.
In addition to cleaning and polishing up your shop, it is important to consider what characteristics set your shop apart from other competitors
and enhance them.
“Think like a buyer — why would someone want to buy my shop?” Bunch said. “Does my shop make good money? If it doesn't, why not? Do I have to go in and work 12 hours a day every day, or just four hours a week? That's what is going to make a difference.”
Spend time with your manager to make sure they understand your business's systems and processes. This helps to assure the buyer that the shop will stay intact when you're no longer in the picture.
“As a buyer, I’m going to pay less for a business if I have to put a manager in my newly acquired shop to make up for the owner no longer working,” Bunch said. “If an owner can have a good manager in place to go with the sale, the buyer will maximize the value. As an owner, getting themselves out of the day-to-day and leaving it to others is important."
MAKE SURE THE PROPERTY IS SECURED
Any potential buyer will need to know if they will own the prop- erty the shop sits on or if they can lease it for a longer term.
“As a potential buyer, I want to have the opportunity to own the real estate,” Bunch said. “It's not a deal breaker, but if I must lease it, I want to ensure I can secure that property. If I can't stay in that location for at least 15 years, that will blow up the deal. Make sure you can sell the business and that it comes with real estate in one way, shape, or form.”
Buyers also look for the human capital that comes with a sale. A shop with knowledgeable technicians and well-trained staff will charge a higher price.
“As a buyer, I want to make sure that they've got good technicians and people and they know what they're doing,” Bunch said. “I would say most buyers not only want the location, equipment, and data- base, but they also want good employees to go along with it.”
USE YOUR RESOURCES
Succession planning is not something you have to do on your own. If you’re stuck and need help figur- ing out how to start, there are plenty of great coaching companies that can help. Also, preparing to transfer ownership of your shop is a process is not necessarily a fast process if you want to do it right.
“A good succession plan is important and is usually a three to five-year process to do it right," Bunch said.
RETRAIN THE BRAIN
Many shop owners are busy running their shops each day, so you’re not alone if you feel like you need more time to ponder what you want this next phase of your career to look like. After selling his auto shops, Kaplan stays busy consulting with Trans- former’s Institute, golfing, and spending time with his family. Regardless of what shop owners choose to do, having a plan can help ease the shock of not going to work every day.
“Figuring out what to do with your mind after the fact has probably been the hardest thing I've had to transition,” Kaplan said. “Your mind has always been consumed with business — it’s going, going, going — and when you don't have that anymore, you must retrain your brain. That can be scary, but also something you must do.”
Retirement is something to look forward to, and planning for it isn’t something you should dread. Planning ahead means that you can likely avoid the headache of last-minute decisions or the “what-ifs” of your potential future and gives you the confidence that you did everything to get the most out of your auto shop.