Buying And Selling: A New Generation Of Buyers -

Buying And Selling: A New Generation Of Buyers

"As long as I can remember, ever since I was a kid, I always wanted to be my own boss," was the remark made by new business owner Dallas Griswold when asked what had made him decide to buy his own business. Nothing can better define the entrepreneurial spirit than that simple response, which really tells the whole story.

buying-selling-generation-1
Dallas and Allison Griswold with their daughter Jaylee were all smiles in their Facebook post after becoming the new owners of Berney’s Tire Service.

“As long as I can remember, ever since I was a kid, I always wanted to be my own boss,” was the remark made by new business owner Dallas Griswold when asked what had made him decide to buy his own business. Nothing can better define the entrepreneurial spirit than that simple response, which really tells the whole story. Dallas, age 31, purchased Berney’s Tire Service in Albany, GA, earlier this year. The accompanying photo portraying the pure joy of Dallas, his wife Allison, and their daughter Jaylee was posted on the company’s Facebook page the day of the closing.

Dallas saw the online business listing for Berney’s Tire Service on BizBuySell, which is the Internet’s largest business-for-sale marketplace.

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“I had been seriously looking for a business opportunity for about a year and a half,” Dallas recalled. “I had looked closely at three businesses, but was not satisfied with what I saw in their financials. After I received my college degree in business, I had gone to work in the manufacturing sector and had worked my way up into a supervisory position of about a hundred production workers, but I found that corporate climate to be unfulfilling. My strong desire to control my own destiny drove me to keep looking. Berney’s Tire Service, in addition to being geographically convenient, was able to show me the key financial indicators I was seeking. The business was turning a profit and providing a cash flow upon which I could support my family. The auto service industry interested me … my grandfather owned a shop and I grew up with a lifelong love of cars and racing.”

buying-selling-generation-2Berney’s Tire Service is a well-established independent tire and automotive service center owned and operated by Robert and Brenda Galloway since its founding in 1985. The well-maintained and state-of-the-art shop is 7,160 square feet with 10 service bays and five lifts. Its reputation for honesty and efficient customer service for three decades has resulted in a loyal consumer base and consistently solid financials. The Galloways were proud to serve the Albany community for nearly 30 years and, in seeking retirement, sought an energetic entrepreneur who wanted to continue the tradition of quality customer service and reap the rewards from the further growth of the business.

“Upon meeting Bob and Brenda Galloway, I realized that we shared common values on how business should be conducted. Over the years, they have made a name for themselves being the best in town. They have always gone the extra mile past their competition to ensure their customers are satisfied. That was very important to me, and it’s a legacy I want to continue,” Dallas said.

buying-selling-generation-3BizBuySell Insight Report

In addition to its online marketplace, BizBuySell also publishes an Insight Report, a nationally recognized economic indicator that tracks the health of the U.S. small-business economy. Each quarter, BizBuySell analyzes sales and listing prices of small businesses across the U.S. based on approximately 45,000 businesses for sale and those that recently sold. BizBuySell’s Fourth Quarter 2015 Insight Report shows that while the number of businesses that changed hands decreased slightly, key financial indicators reached all-time highs, indicating a healthy, more balanced market.

The Insight Report also concluded that part of the reason transaction activity stabilized in 2015 may be that small businesses continue to grow financially healthier, allowing owners to ask for more money, creating a more balanced market.

Closing the Deal

Once Dallas had found a business upon which he wanted to make an offer, the next step was acquiring the necessary funding.  “Allison and I were able to work with Wells Fargo Bank to approve a SBA-guaranteed loan for the purchase,” Dallas said. “Although that required a seemingly unending stream of paperwork, obtaining that loan was worth the effort.” Guardian Properties, a licensed broker based in Atlanta, represented Robert and Brenda Galloway in the real estate and business asset sale.

In order to provide a smooth transition to Dallas, the Galloways have provided ongoing training and support, which Dallas has noted has been pivotal in his education

“They are just great people, and I can’t think of a better way to describe them,” Dallas said. “I fully understand their emotional attachment to a thriving business which they owned for nearly 30 years and their desire to ensure it continues successfully. The Good Lord willing, by hard work and staying focused, I will be able to follow in their footsteps.”

buying-selling-generation-4Insight Report Forecasts

The Insight Report forecasts that as baby boomers continue to reach retirement age in significant numbers, and more owners notice the higher sales prices their peers are receiving, the more likely it is that the supply of business listings will stay strong in 2016. In fact, the number of businesses listed in Q4 2015 also rose 3% over the prior year, compared to 1% growth in Q4 2014. At the same time, buyers are finding increased financing opportunities and will be more eager to purchase a business with consistently increasing financials. In fact, of businesses listed for sale in Q4 2015, both median revenue and cash flow improved compared to the same period the year before.

This is important to note for sellers as well because, not surprisingly, 2015 data shows that the higher financial performance an owner could demonstrate, the higher the value they could receive upon exit. Businesses with a cash flow under $100,000, for example, received a sale price multiple of cash flow around 1.97, while those in the $100,000 to $300,000 range received 2.28 times cash flow. Moreover, businesses showing between $300,000 and $500,000 received a 2.81 multiple. This emphasizes how important it is for small-business owners to improve profitability as they move closer to listing their businesses for sale.

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Shop Equipment ROI – Tooled for Profit

Understanding how to calculate ROI can help your purchasing decisions.

I’m not a financial scholar by any means, but I know what return on investment (ROI) is. It’s a mathematical formula that yields a representation of the profitability of any type of investment. In the automotive repair industry, we primarily associate this with equipment. Admittedly, I’ve never used the term much, more often approaching things from the standpoint, “Am I making money with this or not?” As technicians and shops, our typical thought process centers on each individual job, how much time and money we have into it, so we’re used to thinking profit or loss, and also pretty good at knowing if we made money, or if we lost our “back quarters.”But over time I’ve learned that the thought process alone is not always the best approach, and making money doesn’t necessarily mean a good ROI. Even if you don’t go crazy with an exponentially long, complicated equation, if you understand the basic idea and process of calculating ROI, it can help you make good purchasing decisions. The base calculation would be dividing your net profits by the cost of the equipment. That’s your ROI. Then, if you want to take it further, you can divide that number to get a time-based ROI average.Let’s look at a basic calculation. You buy something for $10, then sell it for $14. Your profit is $4. Divide profit by investment, ($4/$10) and you get an ROI of 40%. Not bad, but if it took two years to make this profit, then your ROI would be 20% annualized, which is not as impressive. You can use this basic formula to compare products you sell as well, and it may help you decide what’s best to keep in stock or not.Now let’s try something with equipment. You have an old tire machine that’s paid for. You average one set of tires per week and it takes 1.5 hours to complete the job. You decide to buy a new tire machine that is much quicker and more efficient but it cost you $20,000. Now the same job only takes one hour. Based on the cost of technician salary, you calculate that it saves you $30 per job with this new equipment. In this case you would use the formula: savings (additional profit)/investment. At one set of tires per week, that works out to $1,560 per year. $1,560/$20,000 equals an ROI of approximately 8%. That’s not too good. It will take you almost 12 years to pay off the new machine.On the other hand, if you average five sets of tires per week, then your additional profit for the first year is $7,800. $7,800/$20,000 equals an ROI of 39%. That’s pretty good. A general rule of thumb is to pay off any piece of equipment within two to three years. This puts you right on track.But now, here is the problem. This is where we throw the proverbial wrench into the plans. Equipment is tricky. You should also calculate in installation and maintenance costs, as well as the cost of training for the new equipment, and factor in how long the equipment is going to be relevant. This is an especially important factor when considering a scan tool, the required updates and how long before it’s potentially obsolete. In the case of a tire machine, you can also calculate in savings from other benefits of a new machine, such as no more damage to wheels or tire pressure monitoring system (TPMS) sensors, which the new machine can eliminate.Some of this can be overwhelming, and it makes me realize why it’s easier just to fly by the seat of your pants and wonder, “Am I making money or not?” It’s an important business aspect, however, to know what is behind the idea because it can benefit you in so many ways. Even without math, you can almost visualize the numbers in your head.I’ll try it by leaving the formulas out to decide whether it makes sense to buy a dedicated TPMS tool when you already have a full-function scan tool with TPMS ability.If you get a TPMS problem every day and you use your full-function scan tool to diagnose it, most likely it takes much longer to boot and longer to navigate to the function. Even then, it may not cover all you need. Because there’s such a vast amount of information that a full-function scan tool has, it simply takes more for the manufacturer to keep everything current. Plus, you often must still rely on service information for certain procedures and then, if it’s the only scan tool for your shop, it ties it up for use in other diagnostics.Now, let’s compare that to a dedicated TPMS tool. Built with only one function in mind, they can make the process much quicker, have greater coverage, boot quicker and quickly walk you through all steps of any required TPMS resets. When you factor in the savings in time and the fact that your primary scan tool isn’t tied up, you can prove the value of a dedicated TPMS tool through ROI calculations. On the other hand, if you rarely work on TPMS systems, you can prove it wouldn’t make sense at all, since you do have the function on your primary scan tool.While you haven’t done any calculations, you’ve thought of it in that manner and can picture where the calculations might end up. If you’re on the fence, the math will give you the answer. Ultimately, your accountant could take the idea even further, with an undoubtedly more advanced knowledge of ROI, and almost certainly a way to calculate depreciation into the formula. That’s where I sign off, but you get the idea. It’s a great concept that represents fundamental business financials.

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