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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.
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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#.
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