when its time to sell out

[Tow411]

Posted by Iron Forest Towing on Tow411 in 2016.

 

when its time to sell out , how do you put a value on it ?????

 

doingitall said:

Having bought and sold several businesses over the years, I can tell you buying and selling a towing business will not be in anyway similar to selling many other types of small businesses, though in the end there really is no "norm". Most towing (and auto care type businesses too) are generally very small businesses based on the reputations of one or maybe a few key people. There are many questions that one would have to ask of such a small business ...

1. What is the likelihood that the business will continue at current volumes with a change of ownership? For most towing companies, that likelihood is very low. With key people leaving there is a high likelihood that local agreements as well as contracts with municipalities and motor clubs will have to be renegotiated, or more likely cancelled with a change of ownership. The local shops and customers that have come to rely on key people will not necessarily continue to use or recommend a company following a change of ownership. Just a fact.

2. Does the company have existing debt? With a likely drop in sales/revenue, can a new owner justify payments? Is existing equipment current and well maintained, or does it need to be updated or replaced? Most times when an towing company is for sale, the existing equipment is becoming dated and may be in need of significant maintenance to remain reliable. Or more commonly existing equipment is in need of updating and replacement. Alternatively, a company may be for sale following recent purchases of equipment and the business cannot support the payments ...

3. What is the likelihood that key employees will remain with the business following a significant change of ownership and leadership? Reality is not very likely. Every towing business (and frankly every very small business) that I have ever had any association with, the owners/managers and employees have very complex relationships that are in fact pretty intimate. They have all learned to work with each other but will have a lot of "interesting" intricacies. Those intricacies will be impossible to duplicate with a new owner, and in fact most employees choose to look elsewhere for employment either before or shortly after a change of ownership. Again, just simple fact.

So at the end of the day, what does this type of business offer to a new owner? Not much really. A phone number, maybe a lot and a building, some trucks that may or may not be worth investing in, and maybe an employee or two that are worth keeping or that will stay long term? So when it comes to a sale price, many times value is estimated at some factor of yearly sales for small businesses, like 2-4 years of gross sales, or some multiple of net sales. But does that really work for a towing business that is very volatile and has so many variables like those above, and likely very high expenses relative to revenue? Most likely not.

So what I have seen when most towing companies sell out is that few are willing to buy, and the value of the business is whatever the equipment and property will bring at auction prices. If you can get a buyer that will buy the business at even a penny more that that, I would take it in a heart beat and save myself the hassle of going through all of that.

There are certainly exceptions, and a very well known company (in any industry, not just towing) that has been run well and has a long term reputation, no debt, current equipment that is paid for, nice property properly zoned and well maintained, and employees that are committed to success of the business long term, may have value above equipment and property. Those companies absolutely exist, but lets be honest, they are few and far between in this industry.

These are my opinions and experiences, there are always other variables to consider with the sale of any small business other than what I can think of here. You have to consider everything when buying and selling. Good luck with whatever side of this you are on.

 

In Memory of National Autow who replied:

I would agree with doingitall and will add that you need to get with your accountant immediately.

There is much more to selling a business than just having someone write you a big check and you walk out the door. In many cases, current owners are retiring and it maybe advantageous for you to finance all or part of the sale. This can cause the value to go up since the purchaser will not have to have as much cash outlay or borrow as much. It might work to your benefit to receive payments as opposed to a one time buy out where you would likely have to pay capital gains taxes.

At the end of the day, the true value of any product or service is the price at which a willing seller and a willing buyer agree to.

What part of the world are you in? I might be interested.

 

wreckerman05 said:

I am like you Iron Forest----still enjoy working,like some time off,,not ready to retire completely --but have thoughts of selling and not sure which way to go---I have over 43 years in this place and have made a good living but not sure of the market value  --or a good working partner deal----???  seen some   of my friends in this business sell and all went good and some that have gone bad---
---or sell equipment and walk away???