Before we begin, I would like to make one comment. Whenever a CPA has done an appraisal of a body shop, I find that their opinion of value is much greater than actual value market place will pay. This is not because CPA’s do not know what they are doing because they do; it is just that market place places a much higher risk on buying a body shop than accountants do. The following is an excerpt from one of those appraisals.

THE THREE WAYS TO APPRAISE A BUSINESS 1. The ASSET VALUATION METHOD. This method is basically used when a body shop does less than $400,000 a year in gross income and seller is making wages, but no real profit above what he would be paid if working for another. On this size business, a buyer is willing to pay for assets of business but little or nothing for goodwill. The equipment is usually worth between $50,000 and $100,000, depending on how many frame machines business owns and how nice a spray booth business owns.

I have seen some specialized shops sell for more than above number because they have a truck spray booth or another business attached to main business. Examples of attached business might be an auto repair shop or towing operation. Also location, size and real estate rental amount will influence value of any business, to some degree.

2. The second method, I call GROSS SALES METHOD. This is used when sales are over $1,000,000 a year but profit is unknown or financials are not available or reliable. Because of experience, a Body shop buyer can make reasonable estimates of future profits, if they have some basic information. The basic information includes rent, source of business (DRP, STREET, or a CAR RENTAL AGENCY), and desirability of location.

When this method is used, value appears to be about 3 months sales or 25% of last 12 months sales. This method is not very reliable on businesses with sales of less than $1,000,000, because question of being profitable is very questionable. Why is this breaking point $1,000,000 in annual sales? Multi-store buyers will have well paid managers, so many figure their breakeven point is around a million.

Less than $1,000,000 in sales is not even worth their time. Of course we know that there are exceptions to rules. Some of exceptions are A. when a new location will be a satellite store to a bigger location. B. The buyer must have a location in a specific area to please a DRP. C. To get rid of a competitor.

A Commercial Lender is Not a Commercial Lender When it is a Bank A commercial lender offers loans backed by hard collateral, usually real estate. Usually a commercial lender's lending criteria will be less stringent than at local bank. This is because most banks focus on providing private residential financing for individuals of local community, not large amount loans for real estate or commercial property acquisition. Most commercial lenders are not so much concerned with borrower's financial record and qualifications as they are about mortgage property value.

Unlike most banks, commercial lenders are able to provide a loan in a short amount of time-usually within several weeks depending on mortgage terms. Commercial lenders also offer a wide variety of loan products. Perhaps most popular of these products is bridge loan. Bridge loans are most often used to take advantage of time sensitive real estate opportunities or to avoid foreclosure.

A Commercial Lender is Not a Commercial Lender When it is a Commercial Broker Sometimes a commercial broker will pose as a commercial lender. The difference between two is that a commercial lender actually provides money, while a commercial broker provides a convenient way for borrowers to find lenders. In most cases where a broker is used, there is no direct contact between borrower and commercial lender. Indeed, from broker's perspective, this would be a bad thing since they profit considerably from middleman fees charged to borrower. So why are commercial brokers in business? By and large they are much more effective at advertising to potential borrowers than commercial lenders. Commercial brokers also provide infrastructure necessary to carry out loan transactions. However, with more and more business being done over internet, their chief value-add is their knowledge of, and access to, a long list of commercial lenders.