Is a used tire shop profitable?

Question

I have the option to have a used tire shop put in my name. It's in the middle of town and quite a few customers come everyday. It does need a little renovation though. The particleboard roof tiles are trashed and it needs new lights. But it has machine(s). Not the newest machines but machines that get the job done. It needs to be cleaned too. Floor and walls. But it gets business. I just feel like it it had a little renovation itd be better but it needs in the thousands to fully renovate it. I'm just wondering if itd be worth it to invest in?

Marcus Auerbach · Answer

@Gavin Kitzi impossible to ultimatley answer your question, but here is what you can do: have your CPA look at the financials of the last years. Find the sceletons in the closets, looks for angry customers, issues with former emplyoee's, talk to the insurance agent etc.

Find a contractor who can give you a ball park number (before you sign anything on the business, you want a firm estimate) on what you want to spend on upgrades. It will probably be more than you think. But people like a clean shop that looks nice and you will probably get more business. Also, can you add other services, new tires, oil change etc. Make sure you understand also, how much the machines cost and what will you do if one breaks and you need a new one? or a repair.

Ask your CPA to help you crunch numbers and projections, see what the worst case scenario would look like, what the best case could be.

Also, do you want to own a tire shop?

Charlie MacPherson · Answer

@Gavin Kitzi That fact that you're asking those questions means that you haven't done your homework.  And a site dedicated to real estate investing and not small business ownership isn't the best place to ask them.  Sorry.

Owning a retail business has a lot of challenges.  Supply of inventory for one.  Where will you get used tires to resell?  Will your customers wait for their size to get shipped in or do you need them in stock?  If you need them in stock, how many sizes can you keep in inventory?

If you really want to evaluate this business, you need to be sure it's profitable, even if you get it for free.  If it's bleeding cash, you'll end up taking on somebody else's debt - and you had better have a way to turn it profitable before your cash reserves run out.

You should get 3 years of bank statements, P&Ls, balance sheets, tax returns, sales records and purchase orders.  You'll need to match POs against claimed sales.  And do the forensic accounting - if the seller claims $500,000 in sales, make sure that he has purchased enough inventory to support that claim.

Do NOT give any credit at all for sales that take place off the books.  Many sellers will say something like "well, we show $200,000 on the books, but there's another $200,000 under the table".

Any sales that don't get recorded simply don't exist for your purposes.  If you can't verify them, they never happened.

Once you've given them the once over, get those docs to a CPA.

As to pricing, most small businesses will sell for a multiple of 2X to 3X of "owner's discretionary income" - or the amount that the owner takes home after all expenses are paid.  Add to that amount inventory that conveys at the time of sale (take inventory the night before) - and that inventory should convey at actual cost.  Also add the value of real estate and "FFE", furniture, fixtures and equipment.

Good luck!

Gavin Kitzi · Answer

@Marcus Auerbach yes I want to own the shop. And I have an idea of how much the machies cost to repair. They're not the newest machines so the shop would definitely need newer ones which would be $2k plus each machine and I'll have to ask about the bills and the licenses and all the cost that come with the shop too before I make the decision