Developing a retirement plan can be difficult for small business owners. If you don’t have a successor in mind for your business, selling might be the best option. If you’ve decided you are ready to sell your business, it’s important to understand how your business is valued and what you need to start the process.
NOLN sat down with Valvoline’s Will Turkington, Director of Corporate Development, and Jeff Malicote, Senior Director of Business Development, to learn about the process of selling your business and how you can prepare.
How do I calculate what my business is worth, and what factors are included?
“To determine the value of a quick lube, we first look at recent top-line performance,” said Turkington. “This includes oil changes performed, average ticket, and additional services offered. We find that good operators make sure all needed services are offered, without pressure. This leads to a good average ticket accompanied with a high level of trust and return customers. Keeping a close eye on your cost of goods, cost of labor, and other expenses, ensures that the cash generated by the business is maximized. This cash is measured by earnings before interest, taxes, depreciation, and amortization, known as EBITDA.”
“The first thing needed is a nondisclosure agreement (NDA) that protects both parties,” said Turkington. “Next, we need Point of Sales reports detailing three years of proof of that top-line performance. Sellers will want to show units and revenue for oil changes and any other services provided to give the buyer insight into the effectiveness of your sales effort. Finally, a review of your P&Ls shows operating costs and allows for the calculation of EBITDA.”
How will my business worth be calculated?
“Once we understand EBITDA, we identify what are referred to as normalizing adjustments. This includes expenses unrelated to the actual operation of the business, like family health insurance. We add them back to EBITDA so it represents a stand-alone business. These adjustments can increase what the business is worth,” said Turkington.
Who will I work with?
“Most buyers assemble a team to work alongside you. They will help execute the NDA, collect and review Point of Sale reports and P&Ls, and then identify any Normalizing Adjustments. The result is a valuation of the business that can be shared with the owner,” said Turkington. “This team is tightly knit, and in many cases, only one or two people. The goal is to develop a relationship and trust with the owner in the process.”
What about my employees and family?
“We value our employees very highly, and we know operators do the same,” said Turkington. “Employees have relationships with the customers. They have positions of influence in the community, so they are a key part of the current business. We make every effort to make sure those employees have opportunities with the company going forward.”
If I’m not ready to sell my business, how do I increase the value of my business?
“It's all increasing and maintaining cash flow,” said Malicote. “The way we think about generating cash flow is the number of customer visits and making sure the business is making the most of each visit. Keep a clean customer list with addresses and email addresses because that is of great value to the buyer.”
Final Takeaway
It’s never too early to start planning for the future of your business. Whether you’re ready to sell today or are hoping to increase your value before you retire, taking steps to grow your business can help secure the future of your shop.
Whenever the time is right for a change, give Valvoline Quick Lubes a call, 859-357-7303, or visit www.valvolinequicklubes.com
