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Many smaller body shop owners have asked, How do I appraise my body shop? In the last month I have been asked to do two appraisals on body shops. The first appraisal was to assist in partnership dissolution; the second appraisal was for marriage dissolution. (That is what the attorneys call a divorce.) Would you like to know how to appraise the value of a body shop business?

Before we begin, I would like to make one comment. Whenever a CPA has done an appraisal of a body shop, I find that their opinion of value is much greater than the actual value the market place will pay. This is not because the CPA s do not know what they are doing because they do; it is just that the market place places a much higher risk on buying a body shop than the accountants do. The following is an excerpt from one of those appraisals.

THE THREE WAYS TO APPRAISE A BUSINESS

1. The ASSET VALUATION METHOD. This method is basically used when a body shop does less than $400,000 a year in gross income and the seller is making wages, but no real profit above what he would be paid if working for another. On this size business, a buyer is willing to pay for the assets of the business but little or nothing for goodwill. The equipment is usually worth between $50,000 and $100,000, depending on how many frame machines the business owns and how nice a spray booth the business owns.

I have seen some specialized shops sell for more than the above number because they have a truck spray booth or another business attached to the main business. Examples of attached business might be an auto repair shop or towing operation. Also the location, size and real estate rental amount will influence the value of any business, to some degree.

2. The second method, I call the GROSS SALES METHOD. This is used when the sales are over $1,000,000 a year but the profit is unknown or financials are not available or reliable. Because of experience, a Body shop buyer can make reasonable estimates of future profits, if they have some basic information. The basic information includes rent, source of business (DRP, STREET, or a CAR RENTAL AGENCY), and the desirability of the location.

When this method is used, the value appears to be about 3 months sales or 25% of the last 12 months sales. This method is not very reliable on businesses with sales of less than $1,000,000, because the question of being profitable is very questionable. Why is this breaking point $1,000,000 in annual sales? Multi-store buyers will have well paid managers, so many figure their breakeven point is around a million.

Less than $1,000,000 in sales is not even worth their time. Of course we know that there are exceptions to the rules. Some of the exceptions are A. when a new location will be a satellite store to a bigger location. B. The buyer must have a location in a specific area to please a DRP. C. To get rid of a competitor.

Okay. Be positive that your efficient insight would go ahead of this point. You have to be pertinent with this report to find more.

3. The third and most used method of evaluating any business, including body shops, is the NET PROFIT METHOD. This method is based on the idea that a business is worth what it generates, in profit and benefits, for an owner. Body shops, like so many other small businesses, often do not show a profit, at the end of the year. Strange, how so many businesses of different sizes all just happen to end up with little or no profit. What I find really amazing is that the IRS doesn t audit more businesses then they currently do.

As a result of showing poor profits, on the books, it becomes very difficult to use the NET PROFIT METHOD for appraising many small businesses. Luckily for me, I can quite often find hidden profits, of a business, by adding to the books, items we call owner s benefits. These include: Owners salaries, if a corporation. Personal autos and all the related expenses used by the owner and his family that are written off against the business, fife insurance and health insurance for the owners.

Depreciation is also a hidden profit that is usually added back in to the taxable profit to help build up the total owners benefits. And lastly, personal utilities, phones, trips, etc. that are deducted on the tax return but are not really costs to run the business.

After saying all this, what is the value of a business based on the Net Profit Method? Automotive businesses, especially auto body shops appear to sell for between 1.5 to 2 years adjusted profit (book profit plus owners benefits added back in). Larger body shops doing over $2,000,000 in annual sales may sell for much more, because the owner is making much more money, than just his salary and a buyer will consider part of the profit a return on his financial investment.

Very large body shops that are being bought by public corporations are evaluated primarily on their return on investment (Percentage profit that is being made on the cash purchase price of the business.) These big buyers can afford to pay between 5 times and 10 times annual net profit, after deducting all officers salaries and perks.

Often these, public corporations, high purchase prices include two important restrictions, which is really why they are buying the business in the first place. First: The business is bought for little or no real money. They use restricted corporate stock that is not negotiable for two years. And second: The management is required to stay and run the company for some period of years.

This report is really good still some readers are shaky about its benefits.

You can assess the write-up in the best possible method. Scan till the end to feel if it works for you.

The bottom-line, as I see it, is that you sold your soul, not your business. One last comment on selling to large corporations; heaven help the seller who sells his business for corporate stock or the buyers bonds and the buying company goes broke or the stock market crashes. I had a close friend sell his company for mostly cash and some seller carry back financing in Dec 1997. By Feb 1998 the buying company was in bankruptcy, making the paper my friend held worthless.

CONCLUSION: Appraising a business, especially body shops, is an art not a science. No two people will appraise the value of a business the same. I am amazed that the same thing one buyer thinks is a great asset is what another buyer thinks is a major negative. Differences of opinion are what make life interesting.

Very well. Your exquisite drive to explore more would be satisfied further. Your unusual interest would get a surprise in the paragraphs that follow.

About the Author

Willard Michlin is an Investor, Business Broker, California Real Estate Broker, Accountant, Financial Distress Consultant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net. See other article by Willard at http://www.kismetgroup.com

The closing sections are scrutinized by the enduring individuals. This piece of literature can be enjoyed by only those who have the forbearance to skim till the end.

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If you are intrusive about Hollywood Hills real estate then you would feel requited with this article. Discover the skinny on real estate here. Your cogitation would get changed.

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Your filing system is very important. To be able to locate items quickly is of paramount importance. The following system will work for any kind of business. However, please note that many of the files discussed are specific to lease purchasing.

You should have a general drawer, which contains banking information, supply information, general forms, business license, answering machine message, expense envelope. Anything of a general nature.

Your Real Estate files should have a general section for correspondence(sent and received), faxes sent, e-mails sent, consultation correspondence, forms letters, signs(for rent), general advertising, prospects, consultation prospects.

You should have a file drawer that contains all your contracts and forms.

You should have a file drawer for marketing materials. Flyers, brochures, letterhead, cards, newsletter.

You should have a file drawer for clients. A file for each client. For Lease Purchase a separate file for sellers, this should also contain tenant/buyers and be separated into open and closed. Open contains property you are currently working on. Closed are those properties you have found tenant/buyers for and have completed the deal.

If you take credit cards, a file drawer for monthly transactions.

Okay. The subsequent lines can be an added advantage. Get additional benefits by taking a look at this further.

You should also have a file drawer for any products you sell.

The files that should be handy and placed in your graduated tray are:
(Note: Some files are specific to Lease Purchase only)

1. Calls to Make

2. Database Entries - You can note on letter or fax or e-mail which database to enter it into or I prefer, to avoid any mistakes to make separate files.

a) Seller Prospects (from newspaper calling and FSBO site list)
b) Seller Prospects Web (e-mails done to sellers that have responded for more info.)
c) Consultations Sellers - I note on e-mail received or a phone call, if it is from web e-mail or other lists
D) Tenant/Buyer database

3. Calling Lists - A file that contains all your calling lists.

4. Pending applicants/credit checks - applications I am waiting for credit check info to be returned on

5. Letters To Do

6. To Do On Internet

You should also make up files for the forms we provide in the Lease Purchase section.

1. Tenant/Buyer Telephone Credit Form

2. Tenant/Buyer Preliminary Info Form

3. Lease Purchase Property Research Form (Note: Along with your telephone script, you should also have a sheet typed up with the advantages you want to discuss with the seller)

You should make up a fax file, so if someone requests a brochure, newsletter, products you offer, or a tenant/buyer wants you to fax the form, you can do so.

The fax file should contain:

All right. You could feel contented to reconnoiter the following paragraphs. Continue reading, there are other particulars to follow.

Newsletter (if have one, single sided)

Products Offered (if you have any)

Tenant/Buyer Evaluation Form

Credit Card Authorization

Brochure (on white paper, single sided)

House flyer (flyers for any properties you control)

No doubts about the consistency of this stuff, still the people are unsure about its assistance.

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Your tickler file (accordion file with days 1-31, and manila folders with 12 months), should fit in your desk drawer or under it. You can put your To Do List folder in it at the end of the day for the next day if your space is limited.

Your filing system is an integral part of your business. Be sure your files are set up properly and you will be able to manage your business more efficiently and professionally. Which in the long run, will lead to a successful and profitable business for you.

Copyright 2003 DeFiore Enterprises

About the Author

Interested in having your own successful, home based creative real estate investing business? Chuck and Sue have been helping folks start successful home based businesses for over 19 years, and we can help you too! To see how, visit http://www.homebusinesssolutions.com for the latest FREE tips and tricks, educational products and coaching in creative real estate investing and home based businesses.

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