THA 128: Valuing and Positioning Your Business For Sale
Are you ready to sell your business? Do you know how to prepare? Is it a buyers market or a seller’s market? Do you understand some of the financial principles that drive a transaction? About 50% of you will be impacted by this discussion in the near future.
We cover a large swatch of ground as we talk about the incredible opportunity for sellers as the industry consolidates, getting your financials right, processes, leases and the all-important EBITDA number.
Norm started his brokering and consulting business in 1984 and is well known in the industry. For 35 years he has helped tire & automotive service dealers vastly improve their profitability. During this time, he has helped countless tire dealers realize their dreams in taking control and correctly profit from fixing their business, and ultimately selling their company. Norm is the founder of Dealer Strategic Planning, Inc (DSP 20 Group), the industry’s first tire-focused 20 Group, that he sold to Bobit Business Media, publisher of Modern Tire Dealer in 2015 and was elected into the Tire Dealers Hall of Fame in 2017 for his contributions to the industry.
Norm is a Certified Business Intermediary (CBI) and a member of the International Business Brokers Association.
Dennis started his career Bridgestone/Firestone working in various sales and management level positions prior to leading the national retail management training programs. Most recently, Dennis was the Executive Director of Dealer Strategic Planning Inc. (DSP 20 Group), providing coaching and consulting services to its members.
With over 25 years of experience in the tire & automotive industry, Dennis is a seasoned professional with vast tire and auto service industry experience. He is also a featured columnist for Modern Tire Dealer, “Business Insights”
Dennis continues to teach workshops around North America to tire dealers from financial acumen to behavioral selling and leadership and coaching skills.
Joel started his career at PriceWaterhouseCoopers before joining Monro, Inc. as the Vice President of Acquisitions and Operations Support, responsible for leading the company’s acquisition strategy and supporting the operations of Monro’s nearly 1,200 auto service and tire locations. During his time at Monro, Joel oversaw the company’s commercial and wholesale operations, as well as various corporate support functions including, pricing, customer service, facilities, and training.
Joel’s experience in leading the acquisition strategy at the tire and automotive service industry’s largest strategic buyer, Monro, Inc., gives him the credibility and expertise to represent sellers during the sale process.
Joel is a CPA and member of the International Business Brokers Association.
Jeff started working at his father’s business, J & J Tire Company, at age 16 as a janitor in the tire warehouse. Eventually moved up to other positions within the warehouse until he was sent to a retail location at the age of 20 starting as a tire changer before moving into sales. By 21, Jeff had been promoted to store manager and ran a retail location for the next 7 years. In the meantime, his father sold his company and he stayed with the new owners until his father’s non compete expired. His dad would open a Goodyear service center and Jeff left to run that location for him.
Jeff left his employment to open his first location in 1990 at the age of 30 and would soon open a second location in 1992 and a 3rd in 1993. For the next 25 years, Jeff would open new locations, closed two locations, until he netted 5 locations that he eventually sold to Monro inc.
Jeff’s dad still has the Goodyear location and shows up to work 6 days a week at the age of 93. My brother Alan is the manager of the location and another brother, Eric, would have his own very successful location that he sold to Jeff’s son Ryan as he was selling his locations.
Key Talking Points:
Consolidation opportunities are the biggest they’ve ever been
A seller’s market
A great time to sell your business
It is incumbent on the seller to get their house in order. Speaking to a consultant at least two years out will benefit the transaction
Consolidators are buying market share. Multishop owners are more attractive because they are dealing with just one owner.
A buyer can leverage synergies quicker
Type of buyers:
Growing from one to two or two to three are big challenges to the shop owners. Key ingredients:
Multishop owners are more attractive to consolidators
Big buyers need to acquire to buy share
Earnings Before Income Tax Depreciation and Amortization (EBITDA)
The determines the ‘Free Cash Flow’ in the business
Looked at as the primary measure of the value of your business
Buyers will pay a multiplier of EBITA. Certain industries have a multiplier range
A single store multiple can be in the range of 3 -4.
Multistore multiple from 3 – 5 up to 7-10 depending on the eagerness of the buyer
The Multiple includes the assets and a minimal inventory
Some CPAs may not know how to evaluate an automotive service business
Selling assets is not a great plan. EBITDA is the best way.
Therefore a profitable bottom line is your best offense in a transaction
What the market will pay is also an important factor
Selling a family member has a different set of dynamics
Selling to an employee
You may need to retain the risk of the business
If they fail, you are back in business
Need a down payment
Can be worked out over time
Can involve SBA
You can sell the business for more with an outside buyer
Getting your Profit and Loss (P & L) statement ‘right’
Get your cash sales and any rebates recorded
It is not extra spend money
For every dollar you put in from any cash sales go directly to the bottom line
Business owners have perks that are on the P & L
There are some legitimate expenses that provide benefit to the business
For a new owner, they will not value those expenses and can be added back to the overall earnings of the business
There are some that are not and need to be normalized out of the statement or exposed when calculating the business value
Be prepared to talk about these perks with the buyer so they know what will be non-recurring expenses when they acquire the business.
Some expenses can be excessive and may be scrutinized if they are added into EBITDA
Buyers look at a business where the owner is not the center of the wheel.
The business cannot be owner-centric
Process and procedures allow the business to run without the owner
If the owner has not let his people run it, the business could dive into a black hole with a new owner because the owner had been the face of the business
Can you take off two weeks and have your business run
Many buyers are looking for general repair facilities
They may worry that a nice business may not fit into their operating model
It is harder to find a buyer for a nice facility (Euro)
Lease or owner-occupied are not factors in the evaluation of the business
Owner the building brings long term income as the landlord
Buying your building/real-estate should be a goal
Forgo your toys and buy your land
You can make more money off of real estate than your business
We are in times of tumultuous change
You need to stop and formulate a plan short term or long range on your options.
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