Don’t Let Inexperience Get in the Way of Success

The collision industry is a $30 billion market in the U.S.  But not a single company accounts for even $1 billion in sales. There is a race to get to the $1 billion in sales mark. (Editor’s note: keep an eye out for our upcoming article on what is driving this race to $1 billion).

The quickest way to get to the $1 billion mark is to acquire other businesses that already generate a few million dollars in sales. So the consolidators need you – but they are also afraid of you.

They are afraid of you because you lack experience.

The large consolidators by their very nature are incredibly cautious. They are backed by some of the largest financial institutions in the world and are stewards for hundreds of millions of investment dollars. They unfortunately cannot just “take your word for it”.

Sure you have been in business for years. You have long term employees. You have long term referral accounts via DRP’s or dealer referrals and repeat business.

But you are inexperienced in their world. It is likely you have never engaged in a multi-million dollar transaction before. You likely have never integrated a business into a multi-million dollar enterprise. You likely have never made a 100 day plan, or been responsible for building a pro forma financial statement, or outlining the working capital required to sustain your business for the next 12 months.

Experience and credibility is earned over time. In a business transaction situation, time is in very limited supply. Thus, when you approach a buyer, or a buyer approaches you, you must be able to quickly demonstrate credibility in a professional way. In a way that means something to a multi-million dollar institution.

It is imperative that you do the following four things in order to ensure your success. And even if you are not planning on a transition any time soon, you will be no worse off as understanding these four things help you run a better business.

Understand their KPI’s. The largest consolidators in the nation are backed by financial institutions with billions of dollars of assets under management. (Editor’s note: you can read more about them here.) So while on an operational basis cycle time and CSI are important, they are going to throw terms out like EBITDA, CAPEX, ROIC, Enterprise Value, clawbacks, seller carry back notes, etc. Even if you are not planning on selling any time soon, understanding these terms and how the big players manage their business will help you mange yours better.

Get your financials in order. Lack of financial clarity and integrity is one of the most common hurdles in any transaction. It is up to you to go out of your way to create this clarity. Build a financial book that shows your financial operating history. Build pro forma financials around future growth. Have documentation that justifies your sales, expenses, profit margins, and growth over time. Even if you are not planning on a transition any time soon having clean financials allows you to run a better business.

Have your team in place. In the collision industry we tend to focus on day to day operations to the detriment of every other pillar in the business. Marketing – yeah, I’ll get to it next week. Human Resources –paychecks are delivered every two weeks, what more is expected? IT –right… isn’t that what you pay tech support at Mitchell and CCC for. Consider training at least one staff member to be responsible for each of those duties. Make yourself redundant. Your business will run better and more efficiently. It will also be more valuable and less scary to an outsider.

Consider outside help. My favorite aspect of the collision industry is that it is full of can do, do it yourself, entrepreneurs. But I have also seen time and time again the can do attitude shift into a damaging hubris. Should the time come when you decide to talk to a consolidator consider outside help. A big part of the reason large consolidators are afraid of you is because so many owners try to “go it alone” and end up botching the entire process, causing significant damage to all parties involved.

At minimum you will need an attorney, a tax specialist, and an M&A specialist with deep experience in your industry. Be careful – the tendency is to skimp on your team or think you can “do it yourself”. A good deal team will help you get set up, keep you from tripping in common potholes, and pay for itself many times over. Often these professionals will help you run a better business well before the time comes to sell.

In short, be professional and efficient. Plan ahead and don’t waste anyone’s time. If you do these 4 things you will create a more valuable, more professional business. The result will be a more profitable business that will quickly get the attention and command a premium relative to other collision repair facilities in the marketplace.

As always, if you have questions about the best way to get your financials in order or get the right team in place, please reach out to me. The best way is by the contact page. I really enjoy discussing these topics.

Until next week.

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