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How to do Automotive Business Valuation

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    Automotive Business valuation: There are many companies in automotive repair in Singapore which generate lots of money every year. The automotive business is a big industry with many important sectors.  A customer has different options when he needs services or when a car breaks down. A customer can either visit the dealership (auto repair facility) where he purchased the vehicle or an entirely different auto repair shop.

    These shops have different vehicles they specialize in, such as Japanese, European or domestic vehicles; some deal with tires, collision repair, fast oil changes, mechanical repair, and others.

    How to do Automotive Business Valuation

    Metrics to Evaluate for Accurate Automotive Business Valuation

    To get a correct business valuation, you need to understand the industry and the auto shop facility’s current performance.

    Some of the metrics that will help in your evaluation are:

    1. Weekly car count

    You can quickly ascertain how busy and engaged an auto shop is from the number of vehicles serviced inside it. This serves as an indication of the company’s potential growth. From this, deriving the current revenue becomes easier.

    2. Revenues

    A company is more desirable when it has a high revenue. Nevertheless, the owner can become an absentee owner once the income is higher than a specific magic number (within $1 million). This means that if every condition is available for a prospective buyer to become an absentee business owner, the value of the business might be higher.

    3. Parts costs

    Another expense to watch closely and carefully is the cost of different automotive parts, as it affects the bottom line. Any good and knowledgeable business valuation advisor should always look at the auto parts cost ratio to revenues.

    4. Average repair order

    A potential buyer can weigh the current service writer’s effectiveness and the possibility to enhance sales when the average repair order at the auto repair facility being discussed is compared.

    5. Labor costs

    Labor costs should be carefully monitored as it has lots of effects on the operating expenses. You can have the business valued when the ratio of labor costs to sales of the industry is compared.

    6. Payment pattern of auto technicians

    You need to know if the auto technicians are paid per hour or a flat rate. Auto shops that use the flat rate payment system have their auto technicians paid based on the national standard time duration for a specific repair. To explain better: if the national standard has it that one repair should take 40 minutes, the auto technicians will be paid for the whole 40 minutes even if he finishes the job in 20 minutes. A good auto technician can work for 40 hours but be paid for 60 hours. When the flat rate system is used well and correctly, it can increase productivity.

    Some of the valuation methods used for automotive business are:


    The First Method is Discounted Cash Flow

    Discounted cash flow is initialized as DCF and is a valuation method used to estimate the value of a company depending on its anticipated future cash flows. DCF analysis tries to find the value of a current investment or business based on projections of how much funds it can generate in the future. This applies to investors’ decisions in firms or securities like acquiring a business or purchasing a stock. It requires complex adjustments and calculations for arriving at the equity value of the company.


    The Second Type is Comparable Company Multiples

    Comparable Company Analysis, denoted as CCA, is a process for evaluating the value of a firm using the metrics of other firms of similar size in the same industry. It operates under the assumption that similar companies will have identical valuation multiples, such as EV/EBITDA, P/E, P/B, etc. Analysts use various available statistics for the assessed businesses and calculate the valuation multiples to compare them. Creating a comparable company analysis is hectic as it requires lots of detailed searches, research, and adjustments as per the target company to estimate the value of the company.


    The Third Method is Precedent Transaction Multiples

    Precedent transaction multiples refer to the company’s valuation by analyzing the M&A transactions concluded in previous years related to the target company business or sectors. This requires a detailed analysis of the transactions and various propriety adjustments before arriving at the value of the company.


    The Fourth Method is Asset Valuation Method

    The tangible and intangible things that belong to your business stated on the company’s balance sheet are your assets. Some assets are vehicles, land, equipment, cash, intellectual property, etc. The value of a company’s assets is assessed in two circumstances. It can be evaluated as the liquidation or going concerned. Valuation of the business derived by valuing assets and adjustment of the liabilities in the business.

    Final word

    The factors above and others not mentioned, such as location, years in business, current marketing efforts, and others, play a role when valuing an auto repair shop. Get advice from a specialist when you want to know the business valuation of your auto shop.

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