Buying a Transmission Franchise
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Question:
I'm looking at buying an established Aamco transmision franchise. How do I figure out what to pay for it and if it's better to start it up as a new center from scratch? Most owners that own existing centers tell me that buying an existing center is the way to go but I get mixed feelings because I ask them if they're willing to sell and some of them are.
Answer:
In my opinion you are far better off to buy an existing location than to start one from scratch. While Aamco has a good track record, a new franchise is nothing more than a glorified start up. There is absolutely no guarantee that you will be successful. The purchase price depends entirely upon the Sellers Discretionary Cash Flow although some within the transmission franchise industry feel that the purchase price should be a percentage of annual gross sales (approximately (25%- 30%).
However, it's profit not sales that you seek. And so, using a multiple of sellers discretionary cash flow which includes: Pre-tax Profit + Owner Salary + Owner Perks + Interest + Depreciation less any foreseeable allocation of profit for capital expenditures is the formula to use. The question then becomes what multiple to use? Generally, these businesses fit right into the 1 -3 times range.
But, there is a big difference and so you must consider such criteria as: how long the shop has been in business, are sales increasing, what does the seller contribute work-wise (actively working on vehicles or managing), any threat of competition, franchise agreement details, etc. Use $150,00 SDCF as your median. Assuming all things being equal, those with SDCF of less than $150,000 should be in the 1-2 times range and those above in the 2- 3 times category.
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Richard Parker author of: How To Buy A Good Business At A Great Price(TM), the most widely used reference resource and strategy guide for buying a business. He has purchased ten businesses in his career and has helped thousands of prospective buyers worldwide learn how to buy the right business for sale. He is also founder and President of Diomo Corporation - The Business Buyer Resource Center. Richard Parker is also the author of BizQuest's Business for Sale Blog |