Subscribe
Update Subscription
 
Article Reprints

Sign up today!
September 2006

 

What is my Yard Worth, Ron?

My comments here are very general in nature, but because I get so many inquiries on this topic, I thought it might be good to discuss it.

I have been hired many times to help determine the value of a yard, in cases ranging from contract disputes, tax cases, condemnations, to assist buyers, and sellers and divorces.

I have NEVER heard of a wrecking yard (not including real estate) sell for more than one times the annual sales, and most times much less. Typically, the sales price for the business is a multiple of earnings, which need to be recast to solve errors (about 5 times the earnings).

In asset discussion, the value of used parts inventory always comes up. Typically, it can’t be worth more than about three months sales (from that inventory, not including brokered parts or car sales).

The earnings used for the multiple must include fair market value rent (which will drive the land value), and compensation for the owner.

The land may be worth more for other uses, and if so, sell it for those uses and close the yard. A yard this size should only have one employee plus owner, so labor costs are likely too high now. Also, a yard this size shouldn’t need more than three to five acres, so I suggest you sell the yard with five acres and sell the rest of the land to another user. No need to buy a shopping center to get a store, from the buyer’s perspective.

The land value for the wrecking yard should be driven by the rent payment being made, using a 14% or so return on investment. So, your Profit and Loss should show the rent, before net earnings. If the rent is say, $3,000 a month, or $36,000 per year, on a triple net lease, the land is worth $257,000 for the yard use. (Give or take some, but not much). If you aren’t paying yourself enough rent, why not?

If, after rent ($36,000) and adequate compensation to owner (at least $50,000), you still have earnings, of say, $35,000 (10% of sales, seems unlikely), the business is worth a maximum of $175,000 (5 times the earnings), and the land is worth about $250,000 based on the rent being paid. If the rent isn’t market rate, or there has been significant development in the area, the land could be worth more of course, perhaps much more. Obviously, if the earnings are more, and can be proven, the business could be worth more.

My experience is that owners don’t pay themselves hardly anything, and rent isn’t being paid, or is not at market rates. If they were, the earnings are negative, which means the whole enterprise is worth commensurately less.

Ninety percent of folks contacting me are unrealistic about the value of their business. Their savior is that their land is worth more for other uses.


Don’t forget to subscribe to Ron's free monthly auto recycling e-newsletter, with news and tips, register at www.autosalvageconsultant.com.

Remember, only you can make BUSINESS GREAT!

Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.


877-777-0737    •     Fax 419-931-0740     •     118 E. Third Street, Suite A   Perrysburg, OH 43551
© Copyright 2006 AR Publishing Co. All rights reserved. Any reproduction of content requires written permission.