8 Things Automotive Business Owners Should Do 12–24 Months Before Selling

By Nikki and Matthew Stinson | Shift Automotive Services LLC

Most business owners begin preparing for a sale when they feel ready to move on. Unfortunately, that is often later than it should be.

The strongest transactions are usually built during the 12 to 24 months before a company goes to market. That preparation period gives an owner time to improve financial reporting, strengthen management, resolve operational weaknesses, organize important records, and determine what the transaction must accomplish personally and financially.

This is especially important in the automotive industry. Collision repair businesses, dealerships, mechanical-service operations, automotive retailers, and other automotive-related companies may have complicated revenue streams, inventory considerations, equipment needs, customer relationships, franchise or insurer agreements, real estate, environmental requirements, and owner-dependent processes.

A buyer will evaluate all of those areas before deciding how much risk it is willing to accept, how to structure an offer, and how much it is willing to pay. Preparation does not mean making the business appear perfect. No company is perfect. It means presenting an accurate, organized, and supportable picture of the business while addressing avoidable problems before those problems become negotiating leverage for a buyer.

It also means planning for something owners sometimes overlook: life after the business.

A successful exit is not simply about achieving the highest headline purchase price. It is about understanding how much the owner may actually retain after debt, taxes, transaction expenses, escrows, working-capital adjustments, seller financing, earn-outs, or retained equity—and whether those proceeds can support the life the owner wants after closing.

Here are eight areas automotive business owners should address well before beginning a sale process.

1. Start With the Life You Want After the Business

A transaction should be planned backward from the owner’s goals, not forward from a buyer’s offer.

Many owners begin with a valuation multiple or a target purchase price. A more meaningful starting point is the owner’s required net, liquid, after-tax proceeds.

The headline purchase price is not necessarily the amount the owner will have available to reinvest or use after closing. Proceeds may be reduced, delayed, or placed at risk because of:

• Company debt and other obligations

• Federal and state taxes

• Legal, accounting, advisory, and transaction expenses

• Working-capital requirements or adjustments

• Escrows and indemnification holdbacks

• Seller financing

• Earnouts or other contingent payments

• Retained or rollover equity

• Real-estate treatment

• Post-closing employment or consulting obligations

A $10 million purchase price does not automatically create a $10 million investment portfolio. The owner needs to understand what remains after all obligations, taxes, costs, and deferred components are considered.

Determine what the sale must accomplish

Before approaching buyers, owners should begin answering questions such as:

• How much annual income will be needed after the sale?

• What level of spending does the owner and family want to maintain?

• Are there mortgages, tuition expenses, family obligations, or other debts to address?

• What healthcare and insurance costs will need to be covered?

• Does the owner want to retain the business real estate and receive rental income?

• How much cash must be available immediately after closing?

• How much can appropriately remain in escrow, seller financing, an earnout, or rollover equity?

• What investment return assumptions are reasonable for planning purposes?

• How much market risk is the owner comfortable accepting?

• Are charitable giving, estate planning, or family gifting part of the plan?

• Does the owner want to retire, start another business, invest in other companies, consult, or continue working?

• What will provide purpose, structure, and fulfillment after the company is sold?

These questions help define the owner’s true exit number. That number should not be based solely on what another company sold for or on a multiple mentioned by someone in the industry. It should reflect the amount the owner needs to receive, retain, and invest to support the desired post-sale life.

Build the advisory team early

Owners should consider involving several professional advisers before a letter of intent is signed:

• An M&A adviser to help evaluate value, buyers, transaction strategy, and deal structure

• A CPA or tax adviser to estimate tax consequences and net proceeds

• A transaction attorney to evaluate legal structure, protections, obligations, and closing terms

• A wealth adviser to model post-sale liquidity, investment income, spending, and long-term financial security

• An estate-planning attorney to address trusts, gifting, succession, charitable objectives, and family planning

Each adviser has a different role, and those roles should be coordinated.

The M&A adviser should not replace the owner’s tax, legal, estate, or investment advisers. Instead, the team should work together so that transaction terms are evaluated in the context of the owner’s broader goals.

Model several possible outcomes

The owner’s CPA and wealth adviser should model more than one transaction scenario.

Those scenarios may include:

• A higher purchase price with a significant earnout

• A lower offer with more cash paid at closing

• A transaction involving rollover equity

• A sale of the operating business while retaining the real estate

• A complete exit compared with continued employment

• Different tax structures

• Different closing dates or tax years

• Investment outcomes under both favorable and difficult market conditions

This helps the owner compare offers based on what each one may actually accomplish—not simply which buyer presents the largest number.

Plan for the personal transition

For many owners, the business is more than an asset. It provides identity, relationships, routine, purpose, and a place in the community. An owner may spend years preparing the company for sale without seriously considering what daily life will look like after closing.

Owners should think about:

• Whether they want to remain involved during a transition period

• Whether they want to mentor, invest, consult, or begin another company

• How much time they want to devote to family, travel, service, or personal interests

• Which professional and community relationships they want to maintain

• How a spouse or family members view the transition

• What they want the next five, ten, or twenty years to look like

A successful transaction should do more than transfer ownership. It should help the owner move intentionally toward the next stage of life.

2. Make the Financial Statements Transaction-Ready

A buyer cannot confidently value a business it cannot clearly understand.

Many privately owned automotive businesses are managed primarily for tax efficiency or day-to-day cash flow rather than for a future transaction. Their financial statements may contain personal expenses, owner benefits, related-party payments, one-time costs, inconsistent classifications, or transactions that are difficult to reconcile.

Those practices may be manageable while the company remains closely held, but they can complicate a sale.

Begin by reviewing whether the company’s financial statements clearly show:

• Revenue by location, department, service line, or business segment

• Cost of goods sold

• Parts, labor, sublet, materials, and other direct costs

• Gross profit by department or category

• Payroll and employee-related costs

• Rent and real-estate expenses

• Marketing, technology, insurance, and administrative expenses

• Inventory

• Accounts receivable and accounts payable

• Work in process

• Debt and other financial obligations

• Owner compensation and benefits

• Related-party transactions

• Unusual, nonrecurring, or discretionary expenses

The goal is not simply to produce a year-end profit-and-loss statement. Buyers commonly request monthly financial information so they can evaluate trends, seasonality, recent performance, and changes in margins.

Ideally, an owner should be prepared to provide at least three years of historical financial statements and tax returns, together with current year-to-date results. Those documents should reconcile to one another or have a clear explanation for any differences.

Document legitimate financial adjustments

Many privately held businesses have expenses that may not continue under new ownership. These are often described as normalization adjustments or add-backs.

Depending on the circumstances, examples may include:

• Owner compensation above or below a market rate

• Personal vehicles or travel

• Family payroll for individuals who do not perform a necessary business role

• One-time legal or consulting expenses

• Nonrecurring facility repairs

• Charitable contributions

• Certain owner insurance or retirement-plan costs

• Expenses associated with a discontinued location or service

• Unusual losses that are not expected to recur

A buyer may accept some adjustments and reject others.

The stronger approach is to document each adjustment with invoices, payroll records, contracts, or other support rather than presenting a large unsupported number at the end of the process.

Owners should also avoid becoming overly aggressive. An adjustment is useful only if a reasonable buyer believes the expense will genuinely disappear, decline, or change after the transaction.

Reconcile operational systems to the financial statements

Automotive businesses often rely on several systems at once:

• Accounting software

• Dealership-management systems

• Estimating platforms

• Shop-management systems

• Point-of-sale systems

• Payroll platforms

• Inventory reports

• Banking records

Before a sale, the owner should understand how those systems relate to one another.

Questions may include:

• Do reported sales reconcile to the general ledger?

• Do parts purchases and parts credits appear correctly?

• Is work in process treated consistently?

• Are aged receivables collectible?

• Does inventory on the balance sheet agree with a physical count?

• Are deposits, warranties, gift cards, or customer prepayments recorded properly?

• Are intercompany transactions clearly identified?

• Are all locations included consistently?

Unexplained discrepancies create uncertainty. Uncertainty can cause a buyer to reduce value, increase holdbacks, expand diligence, or demand additional protections.

3. Improve the Quality and Predictability of Earnings

Buyers rarely focus only on the amount of earnings. They also evaluate the quality and sustainability of those earnings.

A business that produces predictable cash flow through repeatable operations is generally more attractive than one whose results fluctuate dramatically or depend on unusual events.

Owners should begin monitoring the key performance indicators that drive their particular type of automotive business.

Collision repair businesses may review:

• Sales by location

• Repair-order count

• Average repair order

• Labor gross profit

• Parts gross profit

• Paint and material performance

• Technician productivity and efficiency

• Cycle time

• Customer satisfaction

• Insurer or direct-repair-program concentration

• OEM certification performance

• Supplements and receivable aging

• Sublet expense

• Capacity utilization

Dealerships may review:

• New- and used-vehicle gross profit

• Inventory aging

• Days’ supply

• Floorplan expense

• Finance-and-insurance performance

• Parts gross profit

• Service labor sales

• Effective labor rate

• Technician productivity

• Customer retention

• Warranty and manufacturer receivables

• Departmental profitability

Mechanical and automotive-service businesses may review:

• Repair-order count

• Average repair order

• Labor utilization

• Technician productivity

• Effective labor rate

• Parts-to-labor ratio

• Gross profit by service category

• Fleet-account concentration

• Customer retention

• Warranty and comeback rates

• Marketing cost per acquired customer

• Capacity and bay utilization

The goal is not to chase every possible metric. It is to identify the measures that explain why the company performs as it does. If profitability has declined, determine why. If margins have improved, be prepared to show what changed and whether the improvement is sustainable. If one year was unusually strong or weak, document the circumstances.

Avoid starving the business before a sale

Some owners attempt to increase short-term earnings by delaying necessary expenses, reducing staff, postponing equipment purchases, or cutting marketing. Those decisions may temporarily improve reported profit, but they can also weaken the business and create deferred costs that a buyer will identify.

A more sustainable approach is to improve performance without damaging:

• Employee retention

• Customer service

• Facility condition

• Equipment reliability

• Technology

• Marketing

• Safety

• Compliance

• Long-term growth

A buyer will usually distinguish between genuine operational improvement and temporary cost-cutting that cannot continue.

4. Reduce the Company’s Dependence on the Owner

A common concern in privately owned businesses is that the owner is also the company’s primary salesperson, problem solver, customer relationship manager, recruiter, purchasing authority, and final decision-maker. That structure may work while the owner is present every day. It becomes a significant risk when the owner wants to leave.

A buyer will ask questions such as:

• Who manages the business when the owner is unavailable?

• Who maintains key customer, insurer, vendor, fleet, or manufacturer relationships?

• Who understands pricing and purchasing?

• Who recruits and retains employees?

• Who monitors financial performance?

• Who makes operational decisions?

• Which employees are essential to the company?

• Will those employees remain after a transaction?

Begin building a management structure that can operate without constant owner involvement.

That may include:

• Clarifying leadership responsibilities

• Delegating routine decisions

• Creating an organizational chart

• Developing a second level of management

• Cross-training employees

• Establishing regular operating meetings

• Creating written performance expectations

• Giving managers access to the information necessary to perform their roles

• Identifying retention risks among key employees

• Developing succession plans for critical positions

Reducing owner dependence does not mean withdrawing from the company or allowing performance to decline. It means shifting the owner’s role from being the only person who can keep the business functioning to being the person who leads a repeatable organization. This process can improve both business value and the owner’s quality of life even if a sale never occurs.

5. Document the Business’s Processes and Key Relationships

A buyer is not purchasing only equipment, revenue, or a customer list. It is purchasing an operating system. When that system exists primarily in the owner’s memory, the buyer sees transition risk. Written procedures do not need to become a massive corporate manual. They should explain how the company handles its most important recurring activities.

Those may include:

• Opening and closing procedures

• Estimating and pricing

• Customer intake

• Scheduling and production

• Quality control

• Parts ordering and returns

• Inventory management

• Cash handling

• Accounts receivable

• Vendor approval

• Payroll and timekeeping

• Employee onboarding

• Safety procedures

• Customer complaints

• Warranty and comeback work

• Data security

• Marketing

• Management reporting

• Month-end accounting

• Facility maintenance

Automotive businesses should also organize the agreements and approvals that support operations.

Depending on the company, those may include:

• Property leases

• Equipment leases

• Franchise or manufacturer agreements

• Direct-repair-program agreements

• Fleet contracts

• Vendor agreements

• Software subscriptions

• OEM certifications

• Environmental permits

• Business licenses

• Waste-disposal arrangements

• Insurance policies

• Employee benefit plans

• Independent-contractor agreements

• Confidentiality or non-solicitation agreements

• Financing documents

• Floorplan agreements

• Real-estate documents

Do not assume that a buyer will accept verbal assurances that an agreement can be transferred or that a landlord, manufacturer, insurer, lender, or major customer will approve new ownership. Identify consent and assignment requirements early.

Understand concentration risk

A business can appear highly profitable while still depending heavily on one relationship.

A buyer may examine whether too much revenue, purchasing power, referral volume, or operational capacity depends on:

• One insurer or direct-repair program

• One manufacturer or franchise

• One fleet account

• One dealership referral source

• One commercial customer

• One lender

• One parts supplier

• One landlord

• One key employee

• One geographic market

• One service category

• One advertising source

Not every concentration should or can be eliminated. Some relationships are valuable precisely because they are large and durable.

The owner should nevertheless understand the risk and be prepared to explain:

• The percentage of revenue involved

• The length and stability of the relationship

• Whether the agreement is transferable

• Whether the relationship depends on the owner personally

• Whether alternative sources of business exist

• What steps have been taken to diversify

The same principle applies to vendors and employees. A business that cannot operate without one supplier, technician, manager, estimator, or salesperson may carry significant continuity risk.

6. Address Legal, Compliance, Facility, and Personnel Issues Early

Buyers often discover problems during due diligence that the owner has known about—but postponed addressing—for years. Those issues do not necessarily prevent a transaction. However, unresolved problems can delay closing, reduce value, increase escrows, or cause a buyer to walk away.

Potential areas of concern may include:

• Environmental practices

• Hazardous-material handling

• Waste disposal

• Workplace safety

• Wage-and-hour compliance

• Employee classification

• Consumer financing

• Advertising

• Data privacy

• Credit-card security

• Licensing

• Insurance

• Customer warranties

• Prior accidents or claims

• Pending litigation

• Lease defaults

• Unrecorded equipment ownership

• Building repairs

• Deferred maintenance

• Zoning or permit issues

• Unresolved tax matters

• Employee disputes

• Incomplete personnel files

Problems are usually less disruptive when identified and addressed before a buyer discovers them. Preparation should never involve hiding a liability, deleting records, or creating a misleading explanation.

It should involve understanding the issue, obtaining appropriate professional advice, resolving what can be resolved, and preparing a complete and accurate disclosure for anything that remains outstanding.

Review the facility and equipment

A buyer may also evaluate whether the company has been investing appropriately in its physical operations.

Review:

• Equipment condition and ownership

• Maintenance records

• Facility appearance

• Roof, HVAC, electrical, plumbing, and structural issues

• Parking and access

• Environmental condition

• Lease term and renewal options

• Expansion capacity

• Technology and cybersecurity

• Capital expenditures that may be required after closing

An owner does not need to renovate everything before a sale. The owner should, however, understand which issues a buyer may identify and how those issues may affect value or structure.

7. Build the Due-Diligence File Before a Buyer Requests It

Due diligence can become one of the most demanding parts of a transaction.

Owners are expected to continue running the company while responding to extensive requests from buyers, lenders, attorneys, accountants, insurance advisers, environmental consultants, and other professionals. Trying to locate years of records after accepting a letter of intent can delay the transaction and create avoidable stress.

Begin building a secure, organized electronic data room in advance.

Financial records may include:

• Historical financial statements

• Monthly profit-and-loss statements

• Balance sheets

• Tax returns

• General ledgers

• Bank statements

• Debt schedules

• Accounts-receivable aging

• Accounts-payable aging

• Inventory reports

• Capital-expenditure history

• Fixed-asset schedules

• Owner-adjustment support

• Forecasts and budgets

Corporate and legal records may include:

• Formation documents

• Governing agreements

• Ownership records

• Meeting minutes or written consents

• Licenses and permits

• Material contracts

• Litigation and claim information

• Intellectual-property information

• Related-party agreements

• Financing documents

Employee records may include:

• Employee census

• Compensation information

• Benefit plans

• Payroll reports

• Employment agreements

• Commission or bonus plans

• Independent-contractor information

• Employee handbook

• Workers’ compensation records

• Key-person responsibilities

• Pending employment claims

Property and operational records may include:

• Real-estate leases

• Property ownership records

• Equipment lists

• Vehicle lists

• Facility information

• Environmental reports

• Insurance policies

• Loss runs

• Safety records

• Vendor agreements

• Customer contracts

• OEM or insurer agreements

• Software contracts

Organize documents by category and date. Use clear file names. Eliminate duplicates. Confirm that signed versions are available. A well-organized diligence process communicates professionalism. It can also reduce delays, lower transaction costs, and help prevent a buyer from assuming that missing records indicate a larger problem.

Review the data room before sharing it

An owner should not simply upload every file the company possesses.

The records should first be reviewed with the appropriate advisers to determine:

• Whether the documents are complete

• Whether confidential personal information should be removed or protected

• Whether privileged information should be withheld

• Whether contracts contain consent or confidentiality restrictions

• Whether disclosures are accurate

• Whether the information is consistent across documents

• Whether the buyer should receive the document immediately or later in the process

Due diligence should be organized, controlled, and appropriate to the stage of the transaction.

8. Understand Valuation, Deal Structure, and Buyer Fit

Many owners begin by asking, “What multiple is my business worth?”

That is an understandable question, but it is not the only question that matters.

Valuation is influenced by more than revenue.

Depending on the business, buyers may consider:

• Adjusted earnings or cash flow

• Historical growth

• Gross margins

• Management depth

• Customer concentration

• Facility quality

• Real-estate terms

• Market position

• Brand strength

• Geographic reach

• Certifications or franchise rights

• Employee stability

• Capital-expenditure needs

• Technology and reporting

• Litigation or compliance risk

• Buyer competition

• Financing conditions

• Strategic fit

Owners should be cautious about relying on a single rule of thumb or a multiple mentioned by another owner. A company may sell for more or less than an industry average because of its specific earnings quality, risk profile, assets, market, and buyer interest.

The most useful valuation work does more than produce a number. It helps the owner understand:

• What currently supports value

• What reduces value

• What a buyer is likely to question

• Which improvements may realistically affect a future transaction

• What buyer categories may value the company differently

Compare structure—not just price

Two offers with the same headline purchase price may produce very different outcomes.

Important terms may include:

• Cash paid at closing

• Debt repayment

• Working-capital requirements

• Escrow or holdbacks

• Earnouts

• Seller financing

• Retained or rollover equity

• Real-estate treatment

• Tax structure

• Employment obligations

• Noncompetition restrictions

• Indemnification exposure

• Closing conditions

• Post-closing transition requirements

One buyer may offer a higher price but require a significant earnout. Another may offer a lower price with more certainty and cash at closing.

One buyer may require the owner to remain for several years. Another may permit a faster exit.

One transaction may include the real estate. Another may allow the owner to retain it and receive rental income.

The right structure depends on the owner’s financial needs, risk tolerance, desired involvement, tax considerations, and long-term goals.

Consider buyer fit

The highest initial bidder is not always the best buyer.

An owner may also consider:

• The buyer’s financial ability to close

• Transaction experience

• Reputation

• Treatment of employees

• Plans for the brand and locations

• Cultural fit

• Required owner transition

• Certainty of financing

• Likelihood of retrading the purchase price

• Willingness to accept reasonable transaction terms

• Ability to obtain required approvals

• Long-term plans for the business

A buyer that understands the industry, values the company’s strengths, and can close the transaction may ultimately create a better outcome than a buyer that offers an aggressive number but introduces substantial uncertainty.

A Practical 12–24 Month Preparation Timeline

12–24 Months Before a Potential Sale

Focus on the areas that require time to demonstrate improvement:

• Meet with an M&A adviser, CPA, tax adviser, wealth adviser, and estate-planning attorney

• Define the lifestyle and annual income desired after the sale

• Estimate the owner’s required net, investable proceeds

• Evaluate whether the business real estate will be sold or retained

• Identify family, charitable, estate, and legacy objectives

• Begin considering the owner’s post-sale purpose and level of continued involvement

• Clean up financial reporting

• Begin producing consistent monthly statements

• Document owner adjustments

• Improve margins and key performance indicators

• Strengthen management

• Delegate owner responsibilities

• Address employee-retention concerns

• Review customer and vendor concentration

• Resolve compliance or facility issues

• Begin documenting operating procedures

6–12 Months Before a Potential Sale

Begin formal transaction preparation:

• Obtain a preliminary valuation perspective

• Update the net-proceeds model

• Compare potential transaction structures and tax consequences

• Develop a preliminary post-sale liquidity and investment plan

• Review estate documents, insurance needs, and family planning

• Establish the minimum acceptable cash-at-closing and risk parameters

• Assemble the advisory team

• Review tax and legal structure

• Organize the electronic data room

• Review leases and consent requirements

• Confirm ownership of equipment and assets

• Review real-estate options

• Prepare historical financial summaries

• Identify likely buyer categories

• Address unresolved litigation, claims, or contractual issues

• Develop a confidential transaction strategy

0–6 Months Before Going to Market

Prepare for execution:

• Update financial results through the most recent month

• Finalize normalization adjustments

• Recalculate estimated net proceeds under likely offer structures

• Confirm that potential transaction terms align with the owner’s financial plan

• Coordinate the M&A, legal, tax, estate, and wealth advisory teams

• Prepare a plan for the owner’s first year after closing

• Prepare marketing and financial materials

• Establish buyer-screening criteria

• Create a confidentiality process

• Determine how employees and customers will be handled

• Prepare management for buyer meetings

• Set expectations regarding valuation and structure

• Confirm the owner’s preferred transition

• Plan for due-diligence responsibilities while continuing to operate the business

Preparation Creates Options

Not every owner who prepares for a sale ultimately decides to sell.

That is not wasted effort. The same improvements that make a company more attractive to buyers often make it stronger for the current owner.

Better financial reporting, clearer processes, stronger management, reduced concentration, organized records, and thoughtful personal planning can:

• Support growth

• Improve profitability

• Reduce operational stress

• Strengthen borrowing relationships

• Create succession options

• Make the company less dependent on the owner

• Give the owner more control over timing

• Improve the ability to evaluate future offers

The objective is not to rush into a transaction. It is to ensure that when an opportunity arises—or when the owner decides the time is right—the company is prepared to be evaluated on its true strengths rather than discounted because of problems that could have been addressed earlier.

Start Before You Are Ready to Sell

Owners sometimes wait to seek advice because they are concerned that speaking with an adviser means committing to a sale. It does not.

A confidential planning conversation can help an owner understand:

• The company’s current position

• Likely valuation considerations

• Preparation priorities

• Potential buyer categories

• Possible transaction structures

• Estimated net proceeds

• The financial and personal implications of an exit

Shift Automotive Services LLC works with automotive business owners, investors, and strategic buyers through valuation, transaction preparation, sell-side advisory, buy-side advisory, due diligence, and long-term growth and exit planning.

Considering a sale in the next one to five years? Schedule a confidential consultation to discuss where your business stands today, what the transaction may need to accomplish, and which steps may strengthen your options for the future.

Developed with contributions from Nikki Stinson, Founder and Owner of Shift Automotive Services LLC, including the business-owner, operational, and post-exit planning perspectives addressed in this article.

About the Authors

Nikki Stinson is the founder and owner of Shift Automotive Services LLC. She brings a business-owner and operational perspective to transaction preparation, strategic growth, business positioning, and the personal considerations involved in preparing for life after a business sale.

Matthew Stinson is Managing Director of Shift Automotive Services LLC. He works with automotive business owners, investors, and strategic buyers through business sales, acquisitions, valuation, transaction preparation, due diligence, and strategic growth and exit planning.

Together, Matt and Nikki provide complementary perspectives on preparing an automotive business for a successful transition—from strengthening the company and navigating the transaction to understanding what the exit should accomplish for the owner and family.

This article is provided for general informational purposes only and does not constitute legal, tax, accounting, investment, estate-planning, or other professional advice. Business owners should consult qualified advisers regarding their specific circumstances.