Over the last 20 years, I have consulted for and watched as my friends and myself sold out to the consolidators. I’ve also given presentations at ARA conventions on what the consolidators are looking for and how to value your yard. At this year’s ARA convention in Dallas on November 12th at noon, I am speaking on “Succession, Sales and Yard Valuation.” I hope you can attend. Following is a summary of my presentation.
All of us are getting older and it’s happening at the same rate! Eventually, it will be time to hand your auto recycling operation to the kids, or sell it to them or to others. How do we value all this blood sweat and tears? The trickiest thing is the inventory value, but there are many other factors to consider, including tax consequences. Also, if you don’t have kids or obvious buyers, how do you find a buyer, and what can you expect to get from the sale of your business? Finally, how do you maximize your return and minimize taxes?
About that money truck!
What is the money truck? In the investment world, it’s the moment when the bank wire comes. Getting to the point when it is time to back up and unload the money truck is arduous, but, when you do, suddenly all the things you were arguing and negotiating for don’t seem to matter so much. You didn’t get the $200,000 back that you just spent on the new loader, but you did get $350,000 for the equipment you bought 20 years ago. Let’s keep it real. That new loader was only worth that to you and maybe to the operator. And now that you’ve closed, you smile and say to yourself that most of the equipment was pretty worn and you couldn’t have hoped to sell it for the amount you fought for.
How do you make the decision to start down the sales path? Will you give the kids some of the money? If you have no kids, the decision is much easier. You’ve been busting your ass for 20 years or more, and frankly, you’re tired, but you still love what you do. Most yards haven’t been tremendously profitable in any given year, but over time, the yards have made a small fortune. If you were a consulting client of mine, I advised you to invest and not to put all your eggs in one basket.
Of course, the single biggest part of selling the business is determining what the sale price should be. Sellers always say “Oh, that’s not enough,” and yet, if a fortune teller had told you last year that you were going to come into millions, maybe tens of millions, you would have scoffed, right? But it’s real. This could happen. Perhaps you are saying to yourself “Why should I sell now? I’m doing well, and the money is good. Many yard owners are making (and paying taxes on) incomes from $500k to millions. They are doing quite well, thank you. A potential buyer comes along and says the place is worth about 4 to 5 times earnings. You think they’re crazy! You can just work 4 or 5 more years and have that. Well, just pause. Take a deep breath. Let’s talk about the money truck.
On the morning you wake up, maybe in your 50s, and you check your bank balance – $6 million dollars. You just stare. How can this be true? Screw the new loader, momma and me are going on a cruise. You won’t believe how you feel, and you will have a new focus!
I sold to Ford in 1999 for $14.1 million and paid off all those hungry lenders. I was 48. Many would have gone home, but I had a lot of energy and was very competitive. Now I wanted to make money, not run a salvage yard. With $10 million, after paying off lenders and losing $1 million in the stock market, (never again will I do that!), at a 75 percent loan-to-value, you can control $40 million of real estate. I am stupid. I laid it on the line, borrowing against it to start down the new road.
Oh, and I’ll be cashing those $12,500 rent checks for the land, it wasn’t in the sale price and they didn’t want to own it.
Now I am a landlord. Not buying and selling, just renting. In 10 or 15 years, it will double in value. Do the math. Now, let’s keep it real, right? When were you going to ever have $40 million or $80 million? Huh? That can’t be right, can it? How many more years will you need to work at the yard to make that? How much will the yard be worth in 10 to 15 years? Is that what you want to do for 15 more years?
With $6 million in the bank, you will go in and start inventorying cars and helping the buyer. It’s going to be the same, right? Nope. Never again. You’re bright with lots of life left in you. If you’re a fool for work like I am, go open or invest in a few businesses. Mentor.
How did it go? Today, I have more than 1,500 tenants paying rent, including 9 salvage yards. I’m 68 years young. Headed on an around the world cruise, our 275th trip. We’re keeping it real, right? It wasn’t going to happen running the yard. And by the way, now you have a new problem. Are really going to leave the kids all that money?
The money truck has hit you or it may soon if that’s the right decision for you.
Remember, only you can make BUSINESS GREAT!
This article was provided by autosalvageconsultant.com, which was formed in 2001 by recyclers for recyclers, to help them improve their businesses.
Published in the November 2021 Edition