Harvest Business, business brokers and business valuation experts, recently completed the sale of a salvage / scrap yard and used parts business in Frederick Maryland with about a 900 car inventory plus thousands of cleaned and tagged used parts. It had about 35 employees. It is a surprisingly robust and complex business.
What we learned:
- Clear financial statements are a must. Inventory and cost of goods sold allocations will never be perfect.
- Being able to trace the cost of goods allocations to each part and purchased car is essential.
- Putting cash transactions on the books is essential for business value. What cannot be seen cannot be sold.
- Environmental problems (including ones cleaned up and signed off on) should be reviewed with any potential lender early in the process. Some will work with those issues and some will not consider them no matter how clear the paperwork.
- Environmental matters insurance can be available. There is a big difference in policy coverage and cost. Get multiple quotes and read the fine print if this is important to you or your lender.
- It is important that the key people be willing to stay. Typically these will be the yard manager under the owner, the controller or key financial person, the buyer of vehicles, and any superstar salespeople. There are lots of special skill sets in the yard and parts sales departments and the more people that will stay the better.
- Larger yards are more valuable than smaller ones.
- The businesses will usually sell for the value of the land plus a sellers discretionary earnings multiple of 3 to 4 depending on inventory. Be profitable when trying to sell.
- You will never get the “full” possible retail or wholesale value of the unsold inventory. You probably will not even get a discounted value of it. It’s a big number and sellers like to talk about the amount of inventory but inventory turn on most of those parts is painfully slow.
- Permits take a while to transfer. Figure at least 90 days after closing in many jurisdictions.
Overall salvage and used parts businesses are very solid salable businesses. The provide a necessary in when properly operated profitable service.
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Clients choose Harvest Business Advisors for our consistent ability to deliver a high price as part of a smooth exit transaction and our accurate business valuations.