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Tire & Auto Center Grossing $770K

CASH FLOW
$102,996

Specifications

 

Located in an affluent part of Lincoln, this auto repair and maintenance business consistently grosses over $770K in sales and boasts 60% repeat clientele.  Part of a national franchise, this location has been open for 14 years. The building measures at 4,500 sq. ft. and includes 5 bays, a lobby, and an office.  Looking to retire, the seller has negotiated the lease agreement down to $6,400/month plus CAM and taxes.

Staff includes 5 full-time personnel, consisting of a service writer/manager, 3 techs and 1 general service person.  Some employees have been with the company for many years, providing customers with preventative maintenance, engine repair, exhaust checks, brake service and more.

The current owner is the General Manager, but a new owner does not need to have extensive automotive experience.  The franchisor provides plenty of support and information, educating the owner in all areas needed for success.

At a purchase price of $319,000 and 10% down ($31,900), the bank loan would be 68% collateralized by the $173,805 in assets.  A first year’s profit of $52,215 would return 163% of the 10% down after all debts.

 

Business Highlights

  • Year Established: 2003
  • Location and Service Area: Lincoln
  • Number of Clients: 60% repeat business
  • Services: preventative maintenance, engine, exhaust, brakes, fuel system, oil changes and more
  • Lease: $6,400/mo for 4,500 sq. ft. – includes 5 bays, a lobby and an office
  • Reason for Selling: Retirement
  • Employees: 5 FT
  • Seller Training Period: 90 days
  • Current Owner’s Responsibilities: General Manager

Financial Highlights

  • List Price:  $319,000
  • Gross Sales
    • 2016: $773,679
    • 2015: $760,711
    • 2014: $743,470
  • Owner Profit/Cash Flow
    • 2016: $107,025
    • 2015: $96,137
  • YOY Growth: Steady gross sales over $700K
  • Profit Margin: 13.8%              
  • Assets Included in Purchase: $173,805        
    • Equipment: $150,155 – office equipment, security system, various tools and machinery
    • Vehicles:  $2,850 – 2001 Olds Alero courtesy car, Honda V 4-wheeler
    • Intangible Assets: Extremely positive reviews, low employee turnover
    • Franchise Startup: $61,000 in liquid capital needed to start a location
    • Inventory: $20,800

*amounts may vary

Cash Flow Analysis

Description of Financial StatementTax ReturnTax ReturnTax ReturnNotes
201620152014
GROSS SALES$773,679$760,711$743,470
Net Income Shown on Financial Statement$40,014$22,024$7,037
ADDBACKS
Compensation to Owner$30,764$36,400$57,800
Other unrelated Salaries$10,400$10,400$10,400Wife's compensation
11% Tax on total W2 Salaries$4,528$5,148$7,502
Interest$570$858$941Non-onward going expense
Rent$15,000$15,000$15,000Ongoing rent $6,400/mo - renegotiated from $7,650/mo
Non-Business Telephone$1,920$1,920$1,920$160/mo for 2 personal cell phones
Amortization$1,667$1,667$1,667Non-onward going expense
Depreciation$1,595$407$652Non-cash item
Travel & Entertainment$567$2,313$2,908Travel & entertainment unrelated to business
TOTAL ADDBACKS$67,011$74,113$98,790
Seller's Cash Flow = Total Addbacks + Net Income$107,025$96,137$105,827
Profit Margin13.83 %12.64 %14.23 %
  • 10% increase in cash flow between 2015 and 2016
  • 2016 profit margin of 13.8%

Services

Auto Repair

Air Conditioning

Brakes

Coolant System Services

Electrical Service

Engine Service

Exhaust

Fluid Service

Fuel System

Oil Change

Preventative Maintenance

Radiator

Suspension

Tires

Transmission

Sales Analysis

62% of sales generated from parts retail

Parts retail sales increased by 9% ($47,926) between 2014 and 2016

Franchise Startup Information

  • The initial franchise term of agreement is for 15 years – this location has been in operation since 2003, and the franchise term will be ending in the next couple of years
  • Minimum cash required for an initial location is $100,000 with the ability to obtain additional financing:

Initial Franchise Fee: $25,000

Initial Advertising: $5,000 - $10,000

Lease Deposit & First Month’s Rent: $7,000 - $35,000

Pre-Opening Expenses: $13,000 - $35,000

Travel & Living Expenses While Training: $1,000 - $3,500

Additional Funds: $10,000 - $50,000

Total Estimated Liquid Capital Needed: $61,000 - $158,500

  • Before opening a location, the franchisee is required to qualify before interviewing with headquarters

Based on these startup requirements, purchasing an existing store cuts out much of the initial cost.  As opposed to spending roughly $100,000 to get started, a buyer would only need to pay $31,900 for this location, saving $68,100!

Equipment

Equipment included in the purchase price is valued at $129,021

  • Front Alignment Lift
  • Hunter Computer Alignment Package
  • Pro-Cut On Car Brake Lathe
  • Bench Lathe with Cabinet Amoco 4000
  • Specialty tools and cabinets
  • Hoffman 7000s Wheel Balancer
  • Firepower FP200 Mire Welder with gas

Vehicles & Assets

2 vehicles worth $2,850 are included in the purchase:

  • 2001 Old Alero Courtesy Car
  • Honda V 4-Wheeler

Assets of $21,134 include:

  • 2 PC computers
  • Alignment Computer System
  • Security Camera System
  • Furniture
  • Racking

Valuation Details

The Firm Business Brokerage used a Cash Flow Valuation methodology to determine the Purchase Price of the business. 

The formula used is as follows:

3-Year Average Cash Flow    x          Prescribed Multiple =          Fair Market Value

Cash Flow is the sum of business net income plus any owner perks and any non-onward going expenses.

A multiple is prescribed by a 20-question, 100-point parameter ranking system that is used to analyze the current business health. Each question is based on a scale from 1 to 5: 1 being low, 2 below average, 3 average, 4 above average, 5 high. The average of the responses sum is the business’ prescribed multiple.

With this information, the computation is as follows:

$102,996         x          3.1       =          $319,287

The Fair Market Value of this business is $319,000.

Funding Example

Purchase Price:                          $319,000

10% Buyer Down Payment:             $31,900

10% Seller Financing:                      $31,900

80% Bank Loan:                               $255,200

Seller Financing 5-year term at a rate of 4.5% equals a monthly loan payment of $595.

Bank Loan 7-year term at a rate of 5.25% equals a monthly loan payment of $3,637.

After business expenses and loan payments, a buyer with a 10% down payment of $31,900 would retain a profit of $52,215, a 163% return on investment in the first year!

A lender is required to have a minimum 1.5 coverage ratio for any business loans extended. At a proposed Purchase Price of $319,000 with the terms listed above, the coverage ratio is 2.03. 

Please note that the decision of whether to extend a loan on any sale belongs to the bank, and this document does not guarantee specific terms or verify that financing is available. 

Purchase Price:

$319,000

$
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$
%
OR
$
Years
%

Bank Loan Needed: $

Years
%
$
$
$
$
$

Funding Details

Business:

Offer Price: $

% Buyer Cash Down at Closing: $

% Seller Carry Back via Promissory Note: $

year term at a rate of %

% of Purchase Price secured by Buyer and Seller

Total Bank Loan Need: $

% of Purchase Price

Desired Loan Type:

Desired Bank Terms: year term at a rate of %

Total Business Assets, Inventory, and A/R: $

Total Undercollateralized Loan: $

Loan Payments

Monthly Payment to Bank: $
Yearly Payment to Bank: $
Monthly Payment to Seller: $
Yearly Payment to Seller: $
Total Monthly Debt Service: $
Total Yearly Debt Service: $

Conclusions

Fixed Charge Coverage Ratio

The bank will require a minimum ratio of 1.5 to be lendable.

Cash Flow:
2016 Cash Flow
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
2016 Cash Flow
$
Annual Debt Service: -$
NOI:

Buyer's Return on Investment (ROI)

The rate of return on the Buyer's down payment.

Down Payment: $
NOI:
ROI: %

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