At Harvest Business Advisors, we’ve used the Art of Business Valuation tools and skills to perform hundreds of Small Business Administration (SBA) valuations for 7(a) business sale loans. The SBA’s 7(a) loan program provides buyers the opportunity to obtain financing when they might not otherwise be able to, and an outside valuation or appraisal of the business can be required. That’s where we come in.
Recently, we did a valuation for a body shop in the greater Denver, Colorado area. The shop works on trucks, busses, RVs, and large vehicles. Having valued auto body shops in almost every state in the U.S., we knew the issues and main factors that would come up during the valuation. Here are 5 questions we assessed during the valuation.
Who pays the auto body shop, and how does that impact the sale?
In general, auto and truck body shops predominately get paid by insurers. During this valuation, it appeared that the insurers would accept the new owners. This means they would transfer the contracts to perform repairs, and the income stream would not be interrupted.
What is the current status of the business?
When we value a business, we take into account a number of factors that are broader than income. In this case, the labor force (aka guys who work at the shop) appeared stable. The supply of parts also appeared under control, so there wouldn’t be a surprise where they couldn’t work. And finally, there was competition from similar shops in the general area.
Are there any recent changes that might impact the business’s value?
The business had recently moved to larger facilities, which had positive and negative impacts on the business. While the larger facilities appeared to increase productivity, rent also went up substantially. In our valuation, we determined not to raise rent for the prior periods because the company would not have had the increased capacity and revenue potential.
Which valuation model works best for this business?
Valuation models are extremely important for figuring out the value (and therefore loan amount) for a small business. In this case, we used the Capitalization of Earnings income method and the market method. We used the EBITDA Cash Flow method to determine the ultimate conclusion or opinion of business value.
Are there external (and maybe unknowable factors) that might impact the business?
It is 2021, and COVID-19 is still very much a reality for most small business owners. In this case, COVID did not appear to substantially impact the company, since trucking continues to be an essential service. We did note that RV repair may increase a small amount in the future, since it has been reported that RV sales and use are up as a result of the pandemic and people opting for more local rather than international travel. Furthermore, the facility continued operating and there appeared to be little change to current or likely future cash flow.
We determined that this was a well-run truck body shop that warranted average or slightly above average multiples and slightly lower capitalization rates. The SBA Business Valuation for a SBA 7(a) loan was delivered in a little over two weeks for the Denver, Colorado area truck body shop, providing one crucial step for the future business owner.
As you can see, the valuation model alone wasn’t enough to complete a valuation, and valuation is not a strict science, but an art. We create the best possible comparison for your business to understand it’s value. To find out more which valuation approach is best for your business, contact me to learn more about our business valuation services.