Hi everyone, I am looking to buy an existing bodyshop which has been around for few decades. I have not been in this business before. But have been in auto related business. What are the things I should be looking for? Is this a good time to get in this business?
What is the usual sales to cash flow ratio?

You are going to either hear crickets on this question...or get a variety of opinions. A lot of what you are asking depends on your location, local market conditions, competition, affiliation with insurance companies, access to skilled tradesmen, etc.

If you've never bought a business before talk to a good lawyer who is familiar with the process. The current owner needs to prove the financials to you, too. If he won't let you see the federal income tax returns for the last five years, walk away. If possible think about retaining the current owner as a "consultant", and tie installment sale payments to him to the bottom line of the business. Always nice to have that motivation in place, if you can work that deal.

Every shop owner I've talked to with the exception of the guys who are opening their 3rd or 4th location and don't blink at dropping $2M into building improvements & equipment tell me that they wish they had gone into an alternate line of work. The big guys run big volume which helps mitigate the tight margins these days.

I personally would be concerned about the kind of reputation you would be purchasing.... whats the area have to say about the shop currently? cause thats what you gonna get... and then from there you either have to fix the reputation or exceed what you bought.

Thanks for your responses. What is considered a decent size in this business? The one I am looking has revenue between half to one million. It appears to be a busy store with reputation and located in upscale area in a industrial park.

Revenue means nothing - you need to look at net. And that range you quoted is a 100% variance - which would immediately make me nervous.

I know an acupuncturist who grosses $1M per year with a net before taxes of $900K. I also know a guy in the landscaping business who grosses $2M a year and has netted a negative profit for the last three years and is now filing for bankruptcy.

You need to get a lawyer or a CPA on board and look at the books and tax returns for the business. Spending a couple thousand on due diligence might save you from making a huge mistake. You have a lot of research to do and although we like talking about this stuff here -- the info from this forum should not be the lynchpin of your decision.

I have hired a accountant and also got the last few years P&L and tax return. He also gave their adjusted P&L which is much different than what they filed for tax return. I am lookinhg for other businesses too and all sellers have 2 sets of books...one for taxes and one for buyers of business. My guess is the actual numbers are somewhere in the middle, but i am leaving it to the accountant.

chris wrote:Revenue means nothing - you need to look at net. And that range you quoted is a 100% variance - which would immediately make me nervous.

I know an acupuncturist who grosses $1M per year with a net before taxes of $900K. I also know a guy in the landscaping business who grosses $2M a year and has netted a negative profit for the last three years and is now filing for bankruptcy.

You need to get a lawyer or a CPA on board and look at the books and tax returns for the business. Spending a couple thousand on due diligence might save you from making a huge mistake. You have a lot of research to do and although we like talking about this stuff here -- the info from this forum should not be the lynchpin of your decision.

I've highlighted and put in bold with what I agree with. I would want a explanation why theres a large swing in numbers.... 500k isn't something that just walks off one year to the next.......

I think it's a tough business to keep above water. There's always competition, it's up to you to be better than them. For someone without experience in the business, I'd say steer away if you can.

On another note, it can be very lucrative if managed properly.