Looking to purchase Franchise. Need Advice

[alpha1]

I have business oppurtinuty which I would like to take advantage of. Here is the scenario. I live in the New York area. There is a local Auto Mechanic shop which has gone up for sale by the current owner. My dilema is this. The current owner showed that the business took a loss in terms of profit over the past year. However, in all actuality the business had a strong year with a decen amount of profit being made. He showed it being a loss for certain reasons in regards to his taxes which is a practice which I have seen other businesses use before. I would really like to take ownership of this property however I have heard that most business loans would only be approved on businesses which show a profit. Is this true? Also, if it is true are there any other avenues which I could take which would enable me to get the funding necessary for the venture.

[OldJack]

You can probably get that loan if you prepare a business plan with a forecast that shows that under your ownership the business would be profitable. Suggest you hire a CPA to help you with the forecast and papers needed before a loan application.

[steve39]

Hello, businesses that do not show consistant profits are WORTHLESS except for the equipment and inventory at auction value, if that. The owner of this auto repair shop certainly shot off both feet with regards to positioning his business for sale as he realistically has nothing to sell in the way of a business. So many owners are so short sighted about this it is beyond belief! Also, on a side note auto repair shops are one of the hardest things to make consistant profit in and if you are looking for a stable, profitable business to buy I would RUN from the auto repair trade unless you have a lot of experience as a professional service manager or previous owner. There are WAY too many variables, WAY too much competition from mechanics turned owners that are totally clueless about business, employee issues will KILL YOU as there are virtually no standards and anyone can call themselves a mechanic with no license requirement, and any truely top flight auto tech is going to cost you a hell of a lot of money to hire and keep. Without the best of the best techs you are doomed to a life of one expensive screw up after another.Just my opinion but I would run from this deal and not look back. Thanks, Steve

[Guideye]

Bankers and Underwriters are more knowledgeable about the business that they lend to than small business people give them credit. They know that some businesses (cash businesses) have suspiciously weak financials. Without good financial history banks will not be too receptive to your plan. Moreover, if you find a bank that will do the loan, they ask you to put some collateral, as well as a co-payment into the project. Most importantly, there is a high probability that your loan will go SBA (the business will be considered a start-up because of the new owner, despite the business story), which will add a couple of points to your loan interest rate. I agree with the previous post that this is a difficult business. However, you may be able to negotiate a better price from the owner because of his screw up. Once you show the seller how "worthless" his business is (do a valuation, use an accountant), then he may be more amenable to lower his price.

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[Coach Morse]

Originally Posted by alpha1

I have business oppurtinuty which I would like to take advantage of. Here is the scenario. I live in the New York area. There is a local Auto Mechanic shop which has gone up for sale by the current owner. My dilema is this. The current owner showed that the business took a loss in terms of profit over the past year. However, in all actuality the business had a strong year with a decen amount of profit being made. He showed it being a loss for certain reasons in regards to his taxes which is a practice which I have seen other businesses use before. I would really like to take ownership of this property however I have heard that most business loans would only be approved on businesses which show a profit. Is this true? Also, if it is true are there any other avenues which I could take which would enable me to get the funding necessary for the venture.

The first thing I would check is why the business is showing a loss on the tax return. If the owner purchased a lot of equipment in the previous year and depriciated all of it on his return then he could show a loss when in fact he made money. An accountant can help you in determining this. If, however, the seller shows a loss because he cooks his books, you need to go look elsewhere. If, after adding back depreciation and loan interest, the tax return doesn't show a profit, then there is not profit to be had.

If that's the case, and the seller just wants you to take his word for it, he's a cheat and a liar, and he's looking for a sucker to buy a terd.

Good luck!
gm

[SethTM]

Originally Posted by steve39

Hello, businesses that do not show consistant profits are WORTHLESS except for the equipment and inventory at auction value, if that. The owner of this auto repair shop certainly shot off both feet with regards to positioning his business for sale as he realistically has nothing to sell in the way of a business. So many owners are so short sighted about this it is beyond belief! Also, on a side note auto repair shops are one of the hardest things to make consistant profit in and if you are looking for a stable, profitable business to buy I would RUN from the auto repair trade unless you have a lot of experience as a professional service manager or previous owner. There are WAY too many variables, WAY too much competition from mechanics turned owners that are totally clueless about business, employee issues will KILL YOU as there are virtually no standards and anyone can call themselves a mechanic with no license requirement, and any truely top flight auto tech is going to cost you a hell of a lot of money to hire and keep. Without the best of the best techs you are doomed to a life of one expensive screw up after another.Just my opinion but I would run from this deal and not look back. Thanks, Steve

I have a hard time believing that a business that doesn't show a profit on paper is worthless. I'm sure the owner of this auto repair shop is living for free out of his business therefore paying zero taxes. Whether this is ethical or not is an entirly different debate, but it's definetely not worthless.

Anyways, paper profit means nothing. Look at the real numbers. Check and make sure you get a reasonable gross income figure, then compare that to his REAL expenses. If this guy is sly like you make him sound, his REAL gross income-expenses(EBIT) could show a nice profit. I'm not saying this is a great deal or anything, but come on now, what business owner doesn't try to cut his bottom line down as much as possible?

As for positioning himself to sell, I agree he made a stupid move by not showing a profit several years prior to the sale. Oh well, give him a low ball offer and if he doesn't accept move on to the next venture.
Especially if he's a desperate seller, he's got to take what he can get.

[Toolman]

Originally Posted by steve39

Also, on a side note auto repair shops are one of the hardest things to make consistant profit in and if you are looking for a stable, profitable business to buy I would RUN from the auto repair trade unless you have a lot of experience as a professional service manager or previous owner. There are WAY too many variables, WAY too much competition from mechanics turned owners that are totally clueless about business, employee issues will KILL YOU as there are virtually no standards and anyone can call themselves a mechanic with no license requirement, and any truely top flight auto tech is going to cost you a hell of a lot of money to hire and keep. Without the best of the best techs you are doomed to a life of one expensive screw up after another.Just my opinion but I would run from this deal and not look back. Thanks, Steve

I have avoided responding to this post for a while, but I figured I would add some of my own information, which is backed up by facts that I have from the industry.

The number of automobiles on the road is increasing each year. Not only that, but they are being kept longer, and driven more miles. Dealerships keep increasing their labor rates at extremely high rates, which is leaving some room for the independents to do well. As cars become more electronic, there are more opportunities for the professional facility, and fewer for the backyard mechanic, unless he is trained well.

However, industry wide, there are fewer automotive shops out there. With that said, there are actually an increasing number of automotive technicians, so you have more techs working in fewer shops.

One of the largest obstacles to automotive repair is the end customer, who still remembers when it was the grease monkey with no training who worked on the cars, and did not show them any respect. Those people are still out there, and when you quote them $60 per hour to fix their vehicle, they freak out. However, those people are dwindling in number. Many people today realize that there are more electronics on todays car than there was on the first lunar module. That is true!

Yes, there are still quite a few hacks out there who claim to be a mechanic, or a technician. You should be able to screen them out. How do I know this? Because I can usually do it myself pretty quickly. If you have a problem with it, you might want to ask any of the tool vendors who come into your shop. Usually, a better tech will have a fairly good quantity of hand tools, and will have a decent quality of electronic diagnosis tools. I get asked by many shop owners about a potential applicant. Genereally, I can comment on how they treat their obligations to me (particularly, how well they pay their tool bill.) If they take care of me, they will generally take care of business.

When you find that really good technician, pay him well! Make it clear that you will take care of him, because techs sometimes move around quite a bit to people who will take care of them, or so they think. That means take care of him with money, benefits, and also letting him take that time to go to his son's little league game, or daughters dance recital. Let him bring in his own vehicle when it is slow, and work on it. Let him bring in his wife's vehcile, and his mothers, and fix it on the slow time. No, he shouldn't abuse this priveledge, but that is family after all. If you want him to treat you as family, treat his family as family. Realize that a very good technician will pay anywhere from $40-$100 per week for his tools, and respect that. In short, respect the technician, when you find those good ones. After all, if the tech is billing out 60-80 hours flat rate in a 48 hour workweek, both he, and YOU should be making good money, if not almost splitting what the shop is bringiing in on labor. If you don't pay flat rate, or incentives, you will probably not have a tech billing much more than 36 hours.

You can look at ASE certification as well, but that sometimes is not a good measure of someones abilities. Many times, you can just tell better by talking to them.

My advice... from a business owners standpoint, either pay on a flat rate basis, or offer an incentive bonus for exceeding flat rate time. This gives the technician a stake in the success of the shop. True, if you can't bring in business, your techs will not be making money, and will move on, but you will do a good job of bringing in business, right? On Flat Rate, they will have to take care of comebacks on their own time, so the incentive is to keep them to a minimum. Just make certain that you have some quality control built into the process.

As for the profit structure, make certain that depreciation, business interest, and any expensable equipment is added back into the profit. When you do that, this business may very well have shown a profit, and possibly a better one than you think.

Well, that is my three cents worth. If the auto repair business was not worth doing, nobody would be doing it. Market a clean, well kept facility with professional techs, and people will beat a path to your door.

[machine]

Be very careful. This is an old business scam. A business owner of a loss making business claims that it's really a profitable business when it isn't. If you are still willing to proceed then value the business on the basis that it made a loss. In other words, equipment at value, plus property (if any), plus stock, plus goodwill amount if any.

Get the figures going back 5 years for the profit made. If it's been making a loss for 5 years then there are two things you should be aware of. It may be under tax investigation (owners don't consistently make losses year in year out and still stay in business - the internal revenue people know this). The other is that it must really be a loss-maker, in which case leave it alone.

If you still want it then do these things and DON'T go in cold before doing your basic research.

Do a customer count before you make any decisions. Work in the business for a week for free to see how it really is going.