What is the usual role of the older generation once tran- sition is done?
This seems the easiest; they usually keep an office and they learn to like just taking the bank deposits or running an errand here and there.
What is the position of the new generation once it is done? I can honestly say that I haven’t seen a business fail after a succession transfer, though there have to be some. This leads me to believe that passing the busi- ness along is the least of all evils. What are some comments from helping your clients that they might have done better? Talk about it. As painful as it might be. Also, I see lots of owners without plans and without kids who want an unreasonable price, and also refuse to finance. They hold out for the big price – hold out, hold out, and pass potential buyers who would like to buy the business, but only have modest down pay- ments. The owners never seem to understand that these businesses are almost impossible to sell without financing, especially at unreasonable prices. They eventually throw in the towel, and liquidate the business. They crush the cars and sell the real
estate, destroying the value they built. They don’t understand that the profits and cash flows have to be able to service the debt, and it doesn’t do any good to ask $3 million for a business that produces $150,000 in net operating income. All they see is a warehouse full of parts and are convinced that the business is worth it. Businesses are only worth what they can gen- erate in income, and that is especially true of inventory. It doesn’t matter how full the warehouse is, the inven- tory is only worth what it produces in sales. To be fair to a buyer and seller, the inventory is unlikely to be worth more at cost on the balance sheet of about 4-8 times monthly sales from that inventory. Usually, I can meet with the accountant and go over some of these principles, and when they hear the accountant agree, they warm up to being real about the sale price. Sellers that provide long- term financing can get more, and that really works for both parties.
Sellers also often refuse to acknowledge the diffi- culties of selling the land due to environmental con- cerns and associated costs, and don’t understand how to prepare for such a sale.
September-October 2015 | Automotive Recycling 37
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