Advice Buying A Auto Repair Shop

[Chris Hamrick]

Hi everyone,

Does anyone have experience buying existing businesses? What are some things I should look for? Here are my concerns:

- Providing false records of income. The thing about this business I can look in their parking lot and gauge how much business they may get, but still want to be as accurate as possible.

- Providing false expenses. I can look up what I can for property taxes I'd think, but my concern is, payroll and utilities and supplies may be doctored.

- I have no idea how to really assess the value. I assume they're lying when they mention the NOI so I deduct 25% from what they say the average is. Again, based on the size of the shop and we've been monitoring secretly how many cars go in and out so we can estimate how much they earn.

- The broker wants me to sign an NDA before giving me ANY information. I just asked what the cap rate was and he responded "Sign the NDA". Sign the NDA for things that should've been mentioned in the marketing brochure? Hmm. 

- Is there any type of commercial loan calculator? They're asking 15 million and I have no idea what that type of loan looks like. I'm mulling in my mind how to get the deal 100% financed. The business comes with the real estate which is 30,000 square feet in a major city. My thought is to use the real estate as collateral to get favorable terms. Also since it comes with the real estate I have flexibility in what the business pays in rent.

Thanks in advance!

[Greg Dickerson]

@Chris Hamrick  if the broker refuses to give you the numbers tell him you can always get it from the seller directly.

In terms of valuation of the business you need to separate the business purchase from the real estate.

 The business is going to be worth a multiple of the EBITDA based on averages in the area. Probably 3-5x for auto repair business.

The property value would be determined based on comps and or net operating income.

 To help vet the numbers you want to ask for all of the financials for the business, P&L, balance sheet and tax returns for the last three years minimum. Longer if available.

Also check reviews on line to gauge public perception and good will.

You have lots of financing options as long as the business has good cash flow and net income. Shop several banks as they all have different terms and rates for financing businesses. You could also explore owner financing options.