Valuation Multiples for an Auto Mechanic Shop
Auto mechanic shops provide repair and maintenance services for cars, trucks, vans, and trailers. This includes providing electrical and mechanical repair and maintenance. According to IBIS World, there are over 281,0000 auto mechanic shops in the United States. In recent years, industry revenue has grown to over $76 billion dollars. However, profit margins can be volatile in the auto mechanic industry. This is due to various factors such as extreme competition, rising operating costs, and fluctuating demand. To build a profitable auto mechanic shop, it is important to understand how to value an auto mechanic shop. This is useful whether you are buying, expanding, or selling an auto mechanic shop. You can start by learning about valuation multiples for an auto mechanic shop.
Valuing an Auto Mechanic Shop
If you are looking to buy or sell an auto mechanic shop, it is important to learn the principles of valuing an auto mechanic shop. Doing so can help you increase the value of an auto mechanic shop. The best way to start is by receiving a business valuation for an auto mechanic shop. If you are looking to buy an auto mechanic shop, receiving a business valuation may help you determine a fair purchase price. In addition, you may learn about negotiation strategies. If you are selling an auto mechanic shop, a business appraisal can help you decide on a listing price.
When valuing an auto mechanic shop, business appraisers often use the market approach. This valuation approach uses valuation multiples to determine the fair market value of an auto mechanic shop. In this article, we discuss valuation multiples for an auto mechanic shop. Please note that this article is only a guide. As such, the valuation multiples we discuss may not apply to your mechanic shop. For more specific information, obtain a business valuation.
Peak Business Valuation, business appraiser, frequently works with individuals who are buying or selling an auto mechanic shop. We are passionate about helping auto mechanic shops succeed! Peak is happy to provide you with a business valuation for an auto mechanic shop. In addition, we can answer any questions you may have on the value of an auto mechanic shop. Start by scheduling a free consultation with Peak Business Valuation today!
Valuation Multiples for an Auto Mechanic Shop
In the following diagram, we share average valuation multiples for an auto mechanic shop. Keep in mind, these valuation multiples are only averages. To learn what multiples are suitable for your auto mechanic shop, receive a business valuation. Doing so can help you succeed whether you are buying or selling an auto mechanic shop. Peak Business Valuation is happy to help! To learn more, schedule a free consultation with Peak. Be sure to also see Valuing an Auto Mechanic Shop and Value Drivers for an Auto Mechanic Shop.
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are numbers that compare the value of an auto mechanic shop to a financial metric. These metrics can include cash flow, earnings, or sales. For example, SDE is a common valuation multiple when valuing an auto mechanic shop. The SDE multiple compares the implied value of an auto mechanic shop to its seller’s discretionary earnings. Business appraisers consider the multiples of comparable auto mechanic shops to get an accurate range of value for your business.
For instance, an auto mechanic shop has $274,000 in seller’s discretionary earnings and receives a 2.12x SDE multiple. In this example, the auto mechanic shop has a fair market value of $580,880 ($274,000 times 2.12x). In contrast, if it receives a 2.53x multiple, the value of the auto mechanic shop would be $693,220 ($274,000 times 2.53x).
Peak Business Valuation works with many auto mechanic shops throughout the country. We often use valuation multiples when valuing an auto mechanic shop. In the following sections, we give a range of valuation multiples that auto mechanic shops typically transact at. Keep in mind, the range of value may vary because each auto mechanic shop is unique. Below, we highlight SDE, EBITDA, and REV multiples for an auto mechanic shop.
SDE Multiples for Auto Mechanic Shops
Average SDE Multiple range: 2.02x – 2.73x
Auto mechanic shops transact at an average SDE multiple range of 2.02x – 2.73x. By applying an SDE multiple to the seller’s discretionary earnings of the shop, business appraisers can determine an implied value of an auto mechanic shop. See the equation below.
SDE X Multiple = Value of the Business
For example, an auto mechanic shop generates $258,000 in seller’s discretionary earnings. If it transacts at a 2.39x multiple, the value of the auto mechanic shop is about $616,620.
$258,000 X 2.39x = $616,620
When using SDE multiples, it is important to calculate the seller’s discretionary earnings of the auto mechanic shop. To do so, valuation experts add back any expenses the new operator may not incur to the value of the auto mechanic shop. Common add-backs may include non-related or non-recurring business expenses, personal expenses, and a fair owner’s compensation. By considering these add-backs, valuation analysts can determine the cash flow potential of the auto mechanic shop. Knowing the cash flow potential is crucial when valuing an auto mechanic shop.
EBITDA Multiples for an Auto Mechanic Shop
Average EBITDA Multiple range: 2.75x – 3.58x
According to our data, auto mechanic shops transact at an average EBITDA multiple range of 2.75x – 3.58x. Business appraisers apply this multiple to EBITDA to determine a fair market value of an auto mechanic shop. See the calculation below.
EBITDA X Multiple = Value of the Business
For example, an auto mechanic shop has an EBITDA of $185,000. It transacts at an EBITDA multiple of 3.17x. Here, the auto mechanic shop is worth $586,450.
$185,000 X 3.17x = $586,450
EBITDA multiples measure the return on investment (ROI) of an auto mechanic shop. Valuation experts may prefer EBITDA multiples since they help normalize differences. This allows the business appraiser to compare your auto mechanic shop to similar businesses. Normalized ratios also provide more accurate projections of the future earnings a buyer can expect to receive from an auto mechanic shop.
REV Multiples for Auto Mechanic Shops
Average REV Multiple range: 0.33x – 0.65x
The average auto mechanic shop transacts at a revenue multiple range of 0.33x – 0.65x. At Peak Business Valuation, a valuation analyst determines the implied value of an auto mechanic shop by multiplying its total revenue by the REV multiple. The calculation is as follows.
Revenue X Multiple = Value of the Business
For instance, an auto mechanic shop makes $1,300,000 in revenue. If it transacts at a 0.52x multiple, the auto mechanic shop’s value is about $676,000.
$1,300,000 X 0.52x = $676,000
Revenue multiples measure the total amount of revenue an auto mechanic shop generates. Keep in mind, REV multiples are less reliable when valuing an auto mechanic shop. Generally, business appraisers use the cash flow multiples – SDE and EBITDA. However, business appraisers will use their knowledge to determine which methods and multiples are most suitable for your auto mechanic shop.
Summary
When determining the value of an auto mechanic shop, business appraisers often use valuation multiples for an auto mechanic shop. The valuation multiple(s) that the business appraiser uses is determined by various factors. To learn which methods and multiples are best for your auto mechanic shop, receive a business valuation. During a business valuation, a valuation expert will help you understand the value of an auto mechanic shop. In addition, receiving a business valuation can help you understand how to maximize the value of an auto mechanic shop. This is vital if you are looking to buy, expand, or sell an auto mechanic shop.
Peak Business Valuation is a professional business appraiser. We work with auto mechanic shops on a regular basis. Peak is happy to help you by providing a business valuation for an auto mechanic shop. We can also answer any questions about valuation multiples for an auto mechanic shop. Schedule your free consultation with Peak Business Valuation below!
See also How to Value an Auto Mechanic Shop, Valuing an Auto Mechanic Shop, and Value Drivers for an Auto Mechanic Shop.
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