Over the last 20 years, I have consulted for and watched as my friends and myself sold out to the consolidators. At this year’s ARA convention in Dallas on November 12th, I spoke on “Succession, Sales and Yard Valuation.” Here’s a summary of my presentation:
All of us are getting older and eventually, it will be time to hand your auto recycling operation to the kids, or sell it. How do you value all of your 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 obvious buyers, how do you find a buyer, and what can you expect? Finally, how do you prepare so you maximize your return and minimize taxes?
WHAT IS THE MONEY TRUCK! In the investment world, it’s the moment when the bank wire comes. YOU’VE CLOSED! Suddenly all the things you were negotiating for doesn’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.
How do you make the decision to start down the sales path? You’ve been working hard for 20 years or more, and 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.
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, 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. A potential buyer comes along and says the place is worth about 4- or 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 after your sale, 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 I are going on a cruise.
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.
Now I am a landlord. Not buying and selling, just renting. In ten or 15 years, it will double in value. How much will the yard be worth in 10-15 years? Is that what you want to do for 15 more years? Or, just 5?
On this morning, with $6 million in your bank account after selling your yard, 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, and 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. Take momma on a cruise.
How did it go? Today, I have more than 1,500 tenants paying rent, including 9 salvage yards. I’m 68 years young. And maybe, just a little slowing down, with the best girl in town. It wasn’t going to happen running the yard.
The money truck has hit you or it may soon if that’s the right decision for you. This one will be different; you won’t worry about how to pay the auction next week ever again.
Quotes from sellers:
I loved that the money truck hit me, but I am young and ambitious, so stayed and still love working at FENIX more than I ever did. I have invested my money, certainly have more peace of mind, but I am now looking for the mother of all money trucks. I am blessed to have a great family, and with the sale, I feel my future is more secure and I know I can spend more time with them. — P. Delaney
LKQ was the best business decision of my life. Over 2 decades ago I was approached by both Ford and LKQ. I liked the business model that LKQ had developed with much more growth potential for my business and my investment. I took a large portion of the deal in LKQ stock, which also had better tax consequences for the sale.
There were 2 main reasons for doing a deal when I did. First was that I did not want my business to get left behind. Second was that I was getting burned out from working my business for 25 years. This allowed me to do as much or as little as I wanted. Perfect fit for me. 5 years later I called it quits. I was able to spend lots of quality time with my girls, watching them grow up. Investment wise it turned out very good. As the stock increased in value, I sold off shares a little at a time. Still have a nice chunk of stock. Made several investments in land and commercial real estate. Also allowed me to invest in my passion and hobby, muscle cars and sports cars. We have spent the last 12 years in Florida during the winter months and back home during the summer. — LKQ Seller, requested anonymity
Ron Sturgeon, Mr. Mission Possible, has been a successful business owner for more than 35 years. As a small business consultant, he can deliver wisdom and advice gleaned from an enviable business career that started when he opened a VW repair business as a homeless 17-year-old and culminated in the sale of several businesses he built to Fortune 500 companies.
Ron has helped bankers, lawyers, insurance agents, restaurant owners, and body shop owners, as well as countless salvage yard owners to become more successful business people. He is an expert in helping small business owners set the right business strategies, implement pay-for- performance, and find new customers on the web.
As a consultant, Ron shares his expertise in strategic planning, capitalization, compensation, growing market share, and more in his signature plainspoken style, providing field-proven, and high-profit best practices well ahead of the business news curve. Ron is the author of nine books, including How to Salvage More Millions from Your Small Business.
To inquire about consulting or keynote speaking, contact Ron at 817-834-3625, ext. 232, rons@MrMissionPossible.com, 5940 Eden, Haltom City, TX 76117.