1. High Initial Investment

It’s no secret that buying an existing auto shop can be more expensive than starting from scratch. Most auto shops listed on the market today are priced at more than $300K. That does not include fees for closing on a loan, registering your new entity with state and local governments, or working capital investments you’ll need to make payroll for the first few weeks.

Luckily, there are sources of funding you can use to make an acquisition, ranging from SBA loan programs, private investors and even 401(k) rollovers.

2. Personal Guarantee

A majority of auto shop acquisitions are purchased with an SBA 7(a) loan. This loan program offers a 10-year term loan to entrepreneurs who need capital to buy a business. Oftentimes, entrepreneurs only need to put 10% of the price down at closing, either from their own funds or from investors.

While this loan program allows entrepreneurial techs to have strong buying power, it does not come without some key requirements. The main requirement is for the borrower to accept a personal guarantee for the loan. If the business acquisition fails and the entrepreneur dissolves the business, the bank has the right to personally pursue the entrepreneur for the outstanding money owed. In some states, this will even require a lien on the entrepreneur’s primary residence.

3. Ownership Transition

While buying allows entrepreneurs to hit the ground running faster, there are more emotions and interpersonal dynamics that need to be navigated. Most acquisitions include a 30-day transition period, during which the selling owner will introduce the buyer to employees and clients and train the buyer on how to run the business.

There are instances where this transition period goes south. Perhaps the owner decides to leave dodge or tries to get employees to work on pet projects. The best way to protect against this is by working with an advisor and attorney to structure the correct legal agreements and consulting contracts ahead of close.

4. Upgrading Equipment and Facilities

With many existing shops having been in business for well over a decade, there is a decent chance that buying an existing shop will require upgrading equipment in short order. Automotive repair equipment isn’t cheap. A lift can cost upwards of $40,000 or more.

Understanding the state of equipment is crucial during the diligence phase of a business acquisition, so that you don’t find yourself having to put another $100,000 into the business within the first year.

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