The Valuable Shop
Through that process, I’m starting to (re)discover what my ideal role is. Things like crafting and communicating the long-term vision; tending the values and culture; building rapport with our key partners both vendors and investors; and working on longer-term projects, like acquisitions, have all become key components of my daily work.
For the purposes of this column, let’s focus on acquisitions. I’m aware that not everyone wants to acquire shops. I’m also aware that not all shop leaders are interested in being acquired, either. However, what all shop leaders do need to be concerned with is creating value. If we’re not creating value for our customers and our teams, what exactly are we doing? This is the core component of what it means to be in business! Whether you are looking to acquire shops, get acquired or perhaps you simply want to have a long-term healthy and stable single operation, the goal is the same: establish a valuable business by creating value for your key stakeholders like yourself, your team, your customers and your partners (however you define them).
Recently, I had a conversation about just that with an owner who is interested in selling. Very quickly, we compiled a list of things that create real value in our industry and that will set you up for a prosperous future: 1. Your financials. One major realization for me is the value of not just the profit and loss statement, but also your balance sheet. Growing sales and even net profit will only take you so far. Balance sheets need to improve year over year as you pay down your debt. Debt to income ratios should constantly be improving.
2. Do you run a lot of personal expenses through the business? Not only could this get you in hot water with the IRS, it can also lower the value of your business.
3. Do you have partners in the business? Is your family employed in the business? Even a minority partner can create challenges when it comes time to sell. And if they own more than 20 percent, most banks require them to submit their personal financials and sign personally on most loans.
4. What is the size, location and condition of the building? Have you been delaying repairs on a leaky roof, for instance, that may be creating even more expenses downstream than if you just dealt with it now? Deferred maintenance can be more costly in the long run.
5. What is the condition of your equipment? You may have three paint booths and two frame racks but if they are from the “disco” era, it might be time to upgrade.
6. Where does most of your work come from? Are you in good standing with any DRPs? Do you have any fleet accounts that provide steady work? Are the agreements in writing or a handshake? Both are valid but they carry the same weight in terms of value. Does more than 30 percent of your work come from one source or is it spread out over several?
7. Are your technicians certified? Are you investing in them and are they investing in themselves via training and tools? What percentage of your workforce is nearing retirement?
I’ve heard it said that some business owners only own a job, not a business. A business is an asset that can have significant value well beyond providing the owner and team a paycheck. However, that’s only the case if there is attention to creating value first for all the stakeholders. While this list is not comprehensive, it’s a good starting point to know if you are creating a valuable business.
Think of the seven points above as levers. None of them can lift the value of your business. However, if several of them start to work in conjunction with the others, you will be on your way to creating an asset that will not only give you a paycheck, but could also very well be a long-term asset that even outlives you and benefits many for years to come.