Due Diligence Ideas: What Experts Say About Buying Auto Body Shops

To the best of my knowledge there are only three experts in California that really understand auto body shops. A few of the key things to know about body shops are:

  • The bulk of the business goes to the shops with multiple insurance contracts.
  • The shops doing less than $1.5 Million usually do not have any insurance contracts.
  • For a shop to be profitable the rent has to be about between 5-8% of gross income.
  • Financial statements are of little to no value on shops that are not 100% insurance shops.
  • A buyer should have industry experience, or a partner who does to buy a body shop.
  • Do not overpay for the shop. Buyers and sellers do not know the true worth of a body shop. In 80% of the body shop sales I review, after the escrow has closed, showed the buyer overpaid by 50% or more.
  • Always have an independent outside expert review an auto body purchase before the deal is closed, not after.

Due Diligence Defined: The phrase is composed of two words.  Due, which the dictionary defines as “proper or adequate” and Diligence, which is defined as “Degree of care or caution expected of a person. Especially as a party to an agreement” Caution: is the watchword in this definition.

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Image credit: monkeybusinessimages  iStock
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