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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.

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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.

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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.

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.

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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.

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.

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

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A home business is by far the best way to support yourself if you just cannot stand working for others for less money than you need to survive. It s also the best way to get out of a good paying job that just takes up too much of your precious short life working for someone else. Let s face it, you probably know someone who has a home business. Do they look happy to you? Do they complain as much about work and money as you do? Probably not.

This is not to say that you should quit your job and start a home business. You should start one while you still have your job. Some people complain that this is hard and takes up too much of their free time. In the beginning a home business is not profitable you have to work at it like anything else.

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Some people eventually go back to work blaming some program or home business opportunity that wasted their time and didn t work. Unfortunately, the odds are actually that they didn t work hard enough and stick to their dreams. Many people allow themselves to believe that there are no legitimate home businesses. It s easier to go to work thinking this than to let themselves truly believe that a home business is possible, profitable, or liberating.

But if you truly believe there are no good home businesses, that they are all scams, then what are the thousands of people doing everyday in your hometown driving around during work hours?

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You know the ones. The people you see on your day off that are driving around and standing in line in places you frequent on your days off. They can t ALL be on their days off too! You have wondered, just like I did, what it is these people do. I know you have.

Many of them have their own home business. Many of the people you see at the post office who know the clerks by first name are shipping packages of goods they sold on auction at Ebay or their own websites.

The cars parked in the county clerk s office in your home town. Some are employees there, but not all of them. Many of the people coming and going from that office in your town (during business hours when everyone should be working, right?) are real estate brokers, or no money down buyers and sellers looking up local property information.

Home business owners are all around you, everyday. The home business industry is quite literally booming and is getting larger exponentially by the month.

The worst thing you could ever do to yourself, that is a life-altering belief system, is let yourself believe it is all a scam or that there is no room for YOUR creativity and YOUR value as a home business owner of any kind!

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Take me for instance! I own my own website and I sell information, business tools for home business people who work on the internet, and services of all kinds. I work from home. I am one of those people you see during the week driving around town while you wonder what it is I do for a living.

About the Author

Darrell Knox is a writer and entrepreneur with 15 years of home business and marketing experience. Website: http://cgi.tripod.com/lazaraus26/cgi-bin/index.pl

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