Most shop owners do not know what their business is worth until someone makes an offer, and by then it is too late to be strategic. Whether an unsolicited call catches you off guard or your retirement plan rests on a number you made up, this episode is a reality check every owner needs.
In episode 143 of Maximum Octane, Kim Hickey talks with Rich Portelance, founder of Pierce Ridge Capital, an M&A firm that helps independent shop owners buy, sell, and grow. Pierce Ridge partners with ATI to provide valuation services. Rich explains how valuations work and what they cost, how real estate and personal expenses affect value, what you can add back, and the story of a deal that collapsed the day before closing.
This article is for general education only and is not financial, tax, or legal advice. Talk with qualified advisors before buying or selling a business.
What You Will Learn
- Why most shop owners have no idea what their business is worth, and why that’s a dangerous position to be in
- What a valuation actually costs: the $200K myth debunked, with real pricing between $2K and $10K
- How the 2.5x to 5x multiple works and what moves your shop up or down in that range
- Why owning your real estate doesn’t change your business valuation, but good lease terms do
- The retirement math problem: why “I’ll sell for a million” is rarely based on anything real
- How to handle personal expenses run through the business, and why tracking them actually helps your sale price
- When you can’t add your salary back into the numbers, and why working in your business instead of on it quietly kills your valuation
- The shop that almost sold for three times its expected value, and why the deal collapsed the day before closing
- Owner-carried notes: why Rich advises taking the lower all-cash offer almost every time
- Why an M&A advisor is not the same as a real estate agent or a broker, and why that distinction matters when it’s time to close
Why Owners Do Not Know What Their Shop Is Worth
Rich opens with why most owners have no idea what their business is worth and why that is dangerous. Without a realistic number, owners cannot plan retirement, respond intelligently to offers, or know which improvements would increase value.
Not knowing the number also makes owners vulnerable to unsolicited offers. When a buyer calls with an offer that sounds large, an owner without a valuation has no way to judge whether it is fair, generous, or well below what the business could command. The same blind spot affects day-to-day decisions. An owner who knows which factors drive value can prioritize improvements that increase both current profit and future sale price, such as documenting processes, building a management layer, and cleaning up financial records. A valuation turns vague hopes into a clear starting point.
What a Valuation Actually Costs
Around the 4 minute mark, Rich debunks the myth that a valuation costs $200,000. He explains that professional valuations for shops typically fall in a range of a few thousand dollars, roughly $2,000 to $10,000 in his experience. That is a small investment compared with the value of the decision it informs.
A professional valuation typically looks at several years of financial statements and tax returns, adjusts earnings to reflect the business’s true profitability, and compares the shop with similar businesses that have sold. Owners can make the process smoother and more accurate by gathering clean financial records, a list of equipment, lease documents, and information about staffing and customer counts before the work begins. The U.S. Small Business Administration’s guide to selling your business describes the common approaches used to determine what a business is worth.
How Multiples Work
Rich explains how valuation multiples work, describing a typical range of roughly 2.5 to 5 times earnings for shops, and what moves a shop up or down within that range. Factors such as profitability, consistency, management depth, customer base, and dependence on the owner all play a role.
From a buyer’s perspective, a multiple reflects risk. A shop with steady, growing earnings, a strong team, documented systems, and a loyal customer base is less risky to buy, so a buyer can justify paying more for each dollar of earnings. A shop whose results swing from year to year, depends on one or two key technicians, or relies entirely on the owner’s relationships looks riskier, and the multiple reflects that. This is why two shops with similar revenue can sell for very different prices. Owners who want a higher multiple should focus on reducing the risks a buyer would see.
Real Estate and Lease Terms
Around the 7 minute mark, Rich explains why owning your real estate does not change your business valuation, though good lease terms do. The building and the business are separate assets. A buyer needs confidence that the business can stay in its location under reasonable terms. Jerry Jankowski discusses holding property separately in How to Protect Our Assets and Avoid Tax Surprises.
The Retirement Math Problem
Rich discusses the retirement math problem: owners who say “I’ll sell for a million” often have no real basis for that number. Jim Groves covers retirement planning in Retirement in the Mirror May Be Closer Than It Appears.
A more useful approach starts with what the owner actually needs. How much income will retirement require? What other savings and investments exist? After taxes and transaction costs, what sale price would close the gap? Comparing that number with a realistic valuation shows whether the plan works or whether the owner needs more time to grow the business’s value. Doing this math years ahead gives the owner options. Doing it the month before listing the business often leads to disappointment or a decision to keep working longer than planned.
Personal Expenses and Add-Backs
Around the 12 minute mark, Rich explains how to handle personal expenses run through the business and why tracking them helps your sale price. He also explains when you cannot add your salary back into the numbers. If the owner works in the business daily, a buyer will need to replace that labor, which affects value. Working in the business instead of on it quietly reduces valuation.
Add-backs are adjustments that show a buyer what the business would earn under new ownership, such as personal vehicle costs, family members on payroll who do not work in the business, or one-time expenses. The challenge is that every add-back must be documented and believable. If a buyer or lender cannot verify an expense was truly personal or nonrecurring, it may not count. Owners who keep personal and business spending separate, and track any exceptions carefully with their accountant, make the valuation process easier and give buyers more confidence in the numbers.
The Deal That Fell Apart
Rich tells the story of an excellent shop that nearly sold for three times its expected value, then collapsed the day before closing because the owner was the business. It is a powerful reminder that systems and leadership depth are essential to a successful sale. Gilda Dyckman describes how she and her husband prepared for their exit in Building, Battling, and Letting Go.
Owner-Carried Notes and Advisors
Around the 26 minute mark, Rich explains why he usually advises taking a lower all-cash offer over a higher offer with an owner-carried note. He also explains why an M&A advisor is not the same as a real estate agent or broker, and why that distinction matters at closing.
How to Increase Your Shop’s Value Before You Sell
The factors that raise a shop’s value are, for the most part, the same ones that make it easier and more profitable to run today. That makes value building worthwhile whether the owner plans to sell in two years or twenty.
- Build a management layer. A service manager or general manager who can run daily operations reduces the business’s dependence on the owner.
- Document your systems. Written processes for estimating, inspections, quality control, hiring, and onboarding show a buyer the business can run consistently.
- Clean up the financials. Accurate, timely statements prepared with a qualified accountant make earnings easier to verify.
- Secure your location. A lease with reasonable terms and renewal options, or a clear arrangement for owned real estate, reassures buyers and lenders.
- Strengthen customer retention. A loyal, diverse customer base signals that revenue will continue after the sale.
Each of these steps takes time, which is why owners benefit from knowing their valuation early. It shows where the biggest gaps are and gives them years, not months, to close them.
Valuation Readiness Checklist
- Get a professional valuation, even if you are not planning to sell soon.
- Separate personal and business expenses and document any add-backs.
- Review your lease terms or real estate structure.
- Reduce the business’s dependence on you personally.
Tony Mercury explains why exit planning cannot wait in Your Exit Plan Isn’t a Back-Burner Task.
Frequently Asked Questions
How much is my auto repair shop worth?
A shop’s value is usually based on its adjusted earnings multiplied by a factor that reflects risk and quality. Profitability, consistency of results, management depth, customer loyalty, location, and how dependent the business is on the owner all influence that multiple. Because every shop is different, the most reliable way to know is a professional valuation from someone experienced with automotive repair businesses. Online calculators can give a rough idea but often miss important details.
How often should I get my shop valued?
Many advisors suggest getting an initial valuation well before you plan to sell, then updating it periodically, especially after major changes such as adding a location or building a management team. Regular valuations show whether the business is growing in value, not just in revenue. They also prepare you to respond confidently if an unexpected buyer calls, and they help you and your financial advisor plan retirement around realistic numbers.
Does owning my building increase my shop’s value?
The building and the business are typically valued separately. Owning the property can be a valuable asset, and you may choose to sell it, lease it to the buyer, or keep it as an investment. What matters for the business valuation is that the buyer can operate in that location under reasonable, reliable terms. If you rent, a solid lease with renewal options can support your business’s value. Talk with your attorney and accountant about the best structure.
What are add-backs when selling a business?
Add-backs are expenses added back to the business’s earnings to show its true profitability for a new owner. Common examples include personal expenses paid by the business, one-time costs, and in some cases compensation above what a replacement manager would earn. Each add-back must be clearly documented and reasonable, or buyers and lenders may reject it. Keeping clean records and discussing add-backs with your accountant before a sale is important.
Should I accept seller financing when selling my shop?
Seller financing, where the owner carries a note and receives part of the price over time, can make a deal easier for a buyer, but it also keeps the seller exposed to the business’s future performance. If the new owner struggles, payments may stop. That is why some advisors prefer a lower all-cash offer. Every situation is different, so review any offer carefully with an experienced M&A advisor, attorney, and accountant before agreeing to terms.
Resources and Links From This Episode
Connect With the Guests
- Rich Portelance: LinkedIn, Instagram, Pierce Ridge Capital
