Auto Salvage Industry Business Broker – Part 4

After rambling about the industry in parts 1-3, let’s examine how you as an owner can ramp up for the sale of your business.

First, the value of the company must be assessed. The goal is to determine the value of the real estate and the business, and ultimately, the asking price. Beyond the real estate, an auto salvage business is either worth the value of the equipment and inventory, or the profit times a multiple. And remember, we have to be brutally honest about values. Buyers with money are careful, and even if they are not financial experts themselves, you can bet that their lender or CPA will ask tough questions or require appraisals before making an offer.

In valuing companies, there are standard formulas and rules of thumb to follow regardless of industry, even though each industry has its own quirks. The auto salvage industry quirk is that it tends to be asset-heavy. Operators require lots of equipment and parts inventory in order to succeed. You’ve accumulated equipment and parts over the years, but now it’s time for the buyer to find all of that money at once, or get a loan. However, bankers tend not to like to finance buyers in the auto salvage industry.

Strong buyers may have the cash or have easy ways to access it. But for the rest, the cash issue can be resolved by offering owner financing. If you decide to go this route, you must be sure to get enough up front to make yourself happy, pay your expenses, then carry back a promissory note from the buyer for the balance. Buyers become borrowers, and must be carefully vetted of course.

During this process, you will need to do a gut check. By now, the asking price has been established, and you may have a better understanding of the remaining steps. Now you must fully commit, or delay your big deal for another time. It could be time to wander in the forest, speak to your family and partners, and get to a place where you feel good with your decision.

If you’re still in the game, it is time to research anything else that might affect the sale. Can a new buyer get the licenses or permits that they want? They’ll ask if the licenses or permits are grandfathered, conforming, or special use. It is vital that you know the answer. It is tricky, because the operator may be able to continue business as usual, but cannot get a building permit to expand a warehouse. City planners tend to want to push auto salvage companies out of populated areas, and they do this by way of zoning and permit control.

Once the information is collected, the brochure can be developed. Your objective is to create a compelling story as to why someone would pay good money to trade places with you. When a connection is made, the serious buyer will demand information immediately. If it takes too long, or the story is not compelling, the buyer is lost.

Sellers have some fundamental decisions to make. Will they personally be doing the selling, or will they hire an attorney or business broker? Owners must examine whether this is a good use of their time, whether they’d be good at it, etc. Confidentiality among employees and managers is also a key issue. These decisions need to be made up front.

You or the business broker can consider the entire world as potential buyers. BTW, I prefer to represent sellers for this very reason. But sometimes I represent a buyer who is looking for a particular type of facility, location, and price range.

When a yard is being marketed, the owner or broker would be networking with as many potential buyers as possible. Depending on what you have for sale, potential buyers could be a national chain, a regional power, or a local company or individual. There are so many types of buyers, regardless of size and means. Potential buyers are similar to your customers. Some are very professional, some are not, some are arrogant, some are very friendly. They may be tire kickers, they may have wanted to steal the business and are then too shy to let you know they have insufficient funds but will waste your time, others are very willing to buy if the deal is right and presented well.

To be continued…