Automotive Repair Valuation Multiples
Are you looking to buy, grow, or sell an automotive repair shop? Before making any major decisions, it is critical to get an updated fair market value estimate. Understanding the shop’s current value allows you to make informed decisions and avoid mistakes. If you just want a quick initial estimate of your business’s value, you might consider applying automotive repair valuation multiples. However, keep in mind that these simplified tools come with limiting implications.
In this article, we discuss some common valuation multiples for automotive repair shops. In addition, we highlight the risks associated with relying on these figures. Please note that the ranges we provide reflect broad market averages and may not match the exact value of your shop. For the most precise automotive repair shop valuation, it is best to receive an independent business valuation from a certified expert.
Peak Business Valuation is a professional business appraiser that works with automotive repair shops throughout the country. Whether you plan to buy, grow, sell, or secure financing, we can provide you with a timely, defensible automotive repair shop valuation. Additionally, we are available to answer any questions you may have on how to value an automotive repair shop. You can get started today by scheduling a free consultation below!
What are Automotive Repair Valuation Multiples?
Automotive repair valuation multiples are market-based ratios used to estimate the value of a business. To determine suitable multiples for an automotive repair shop, valuation analysts review recent sales of comparable shops on the market. Then, the multiple is applied to a financial metric, such as earnings or revenue, to determine fair market value.
Common Automotive Repair Shop Valuation Multiples
When valuing an automotive repair shop, business appraisers at Peak Business Valuation often use multiples based on SDE, EBITDA, and revenue. Each multiple reflects different aspects of the business’s financial performance. As such, valuation experts often use a combination of these methods for a more complete valuation. Below, we explain each metric and provide benchmark ranges for each.
SDE Multiples for an Automotive Repair Shop
Seller’s Discretionary Earnings (SDE) is a common valuation metric for small to mid-sized automotive repair shops. SDE represents the total earnings a single owner-operator can expect to gain from the business. This figure is calculated by adding the owner’s salary, discretionary expenses, and one-time costs back to the net income. See the valuation formula and multiple range below.
Formula: Value = SDE × Multiple
Range: SDE multiples for automotive repair shops range from 2.02x to 2.73x SDE.
EBITDA Multiples for an Automotive Repair Shop
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) measures profitability without the impact of non-operating expenses. EBITDA multiples are popular when valuing larger or multi-location automotive repair businesses. Moreover, these multiples allow for accurate comparisons between other businesses in the industry.
Formula: Value = EBITDA × Multiple
Range: EBITDA multiples for automotive repair shops usually fall between 2.75x and 3.58x EBITDA.
Revenue Multiples for an Automotive Repair Shop
Revenue multiples value a business based on its annual gross sales. While this multiple does not reflect expenses or profitability, it can be a useful indicator when applied alongside SDE or EBITDA multiples.
Formula: Value = Revenue × Multiple
Range: Automotive repair shops often transact within a revenue multiple range of 0.33x to 0.65x.
As a professional business appraiser, Peak Business Valuation typically applies valuation multiples for an automotive repair business during a business appraisal. In addition, we consider the business’s strengths, weaknesses, risks, opportunities, and more. We are happy to answer any questions on how to value an auto repair shop. Schedule your free consultation today by clicking below!
How to Value an Automotive Repair Shop Using Multiples
When using multiples to value an automotive repair shop, business appraisers also consider various internal and external factors that impact the valuation. As such, a professional business valuation may consider elements such as profitability trends, operational systems, competitive positioning, etc… In many cases, weighted averages are applied to account for seasonal fluctuations or irregular expenses. See How to Value an Automotive Repair Shop for more information on the valuation process.
Rules of Thumb for Automotive Repair Shops
Automotive repair valuation multiples are rule-of-thumb methods for valuing an auto shop. While these approaches offer quick reference points, they cannot capture the unique characteristics of each business. As such, relying solely on rules of thumb can lead to inaccuracies. For dependable results, it is best to obtain a professional valuation. Reach out to Peak Business Valuation if you have any questions.
Factors Affecting Automotive Repair Shop Valuation Multiples
Several factors influence whether an automotive repair shop achieves higher or lower valuation multiples. Recognizing these value drivers can help owners determine how to increase an automotive repair shop’s market value. Some crucial factors to consider include:
- Location and Accessibility: Shops located in high-traffic areas or near complementary businesses often see stronger customer volume, increasing revenue potential. A prime location can help raise automotive repair valuation multiples.
- Operational Efficiency: Streamlining repair and maintenance processes at an automotive repair shop reduces turnaround times and improves customer satisfaction. This increases the overall performance and value of the shop.
- Brand Reputation: Establishing a trusted brand through consistent quality and reliability fosters customer loyalty, leading to repeat business and word-of-mouth referrals. These are attractive traits to potential buyers and investors.
- Technology and Repair Resources: Staying equipped with the latest manufacturer repair information and advanced diagnostic tools enables accurate, efficient work. This is a valuable advantage as vehicles become more complex.
For more ideas, see Value Drivers for an Automotive Repair Shop.
Conclusion
Automotive repair valuation multiples can be helpful if you just need a rough understanding of your shop’s fair market value. However, these metrics are based on market averages and do not account for the specifics of each shop. For a defensible automotive repair shop valuation, working with a certified business appraiser is essential. These professionals consider your business’s unique strengths, weaknesses, risks, and growth opportunities, resulting in a comprehensive valuation report.
Peak Business Valuation, business appraiser, frequently helps automotive repair businesses throughout the country. Whether you are buying, selling, or looking to secure financing, we can assist with a professional automotive repair shop valuation. Schedule your free consultation below to get started!
Check out Automotive Repair Shop Valuations or Valuing an Automotive Repair Shop for further guidance.
