7 Good Reasons to Buy an Auto Repair Business
The automobile has been a staple in society for more than a century, and as cars began to spread throughout the country, auto repair shops appeared as well. Unlike businesses which rise and fall when fashion or technology changes, car repair continues to offer stability and opportunity for the business buyer. If you are looking for a business to buy, here are 7 good reasons to buy an auto repair shop.
Reason 1: Auto Repair Produces a Good Income
Information from Bizcomps®, a database which tracks financial information on small business sales, shows that auto repair shops enjoy a median cash flow of over 20% of revenues. This means that if a shop has $750,000 in revenue it can generate an owner’s cash flow over $150,000. This is also a business which can thrive in any economic climate. During strong economies, auto repair shops can cater to both new and used car owners by offering standard maintenance and repairs for much better prices than those charged at auto dealerships. During tough markets, consumers are more likely to hang onto their cars longer, considering it more economical to pay for car repairs than to buy a new car.
Reason 2: Lower than Average Purchase Price
It’s not uncommon for franchises or businesses in a variety of industries to carry price tags of 2 to 3 times the amount of the owner’s cash flow. According to Bizcomps, this is not true with auto repair shops which have an average cost of only 1.69 times the owner’s cash flow. This means that, on the average, an auto repair business generating $150,000 in owner’s cash flow sells for about $254,000. This makes buying an auto repair shop a much more affordable option for a business buyer.
Reason 3: Limited Cash Outlay
While operating an auto shop requires a certain amount of equipment and tools, owners do not have to worry about having their cash tied up in accounts receivable and extensive inventory. Auto repair shops operate on a pay-at-the-time-of-service basis and very few stock large inventories of parts. In most areas, parts can be obtained quickly from parts stores as the need arises.
Reason 4: Strong Industry Outlook
There are several trends which show that the outlook for independent auto repair shops is excellent. For one thing, the number of cars on the road continues to grow. It is estimated that there are over 247,000,000 vehicles registered in the United States and that number increases annually. With just a few exceptions, the number of cars has increased over 3.5 million each year since 1960, and there is nothing to indicate that this trend will change.
Another factor includes the extended life of today’s automobiles. In the past, cars were frequently traded in before they reached 70,000 miles, but improved technology has significantly lengthened the life of most automobiles, and it’s not uncommon for owners to continue driving a car with has more than 100,000 miles on the odometer. The increased age of these vehicles creates a corresponding increase in the need for repairs and on-going maintenance.
During the recent recession the average number of miles driven by Americans has been stagnant. Families struggling with unemployment or underemployment issues are less likely to drive on vacations or non-essential trips, but as the economy improves industry forecasters are predicting a steady increase in the number of miles driven. In fact, the US Energy Information Administration (EIA) is predicting that the number of car miles driven annually in the US will increase from 2.6 trillion in 2011 to 3.6 trillion in 2035; an annual growth rate of 1.2 percent. These facts all point to a sustained demand for independent auto repair businesses.
Reason 5: Positive Competitive Landscape
Unlike many brick and mortar businesses, auto repair shops have not been replaced by internet businesses. This industry also faces little consolidation. While major auto dealers offer repairs, their market share has been shrinking. One reason for this is that auto dealers charge significantly more for auto repair work than do small car repair shops, and a Consumer Report survey found that customers who go to independent auto repair shops report a higher satisfaction level than those who visit an auto dealer for repairs. The independent market is highly fragmented and the typical auto repair shop may have just two to five employees.
Reason 6: Limited Shop Hours
Another reason to buy an auto repair business is that the owner still has time for a personal and family life. Most car repair shops operate during business hours Monday through Friday and are only open until noon on Saturday.
Reason 7: You don’t need to be a Mechanic
You don’t have to be a mechanic to own an auto repair shop. Much of the repair business involves maintenance work and minor repairs for which there are many auto mechanics who can do the work. For the owner, good business management skills are more important. Classes in auto repair shop management are readily available.
If you are a business buyer looking for an affordable, profitable business to own and run, consider an auto repair shop.